Market Outlook – June 19, 2018

Dow Jones Drops Again as Trade War Heats Up

 

The Dow Jones Industrial Average fell for the fifth straight time on Monday as the trade spat between the U.S. and China heats up. The blue-chip index hit a session low on early trade, declining 264.71 points before the tumble was arrested. At the close, the Dow was down 103.01 points (-0.4%).

The S&P 500 index closed 5.79 points (-0.2%) lower. There was pressure on the broader index although energy shares advanced 1.1%, while the S&P 500 technology sector finished with a 0.3% gain. Meanwhile, the Nasdaq Composite Index inched higher by 0.65 points or less than -0.1%.

For the year, the Dow Jones is up 1.1% while the S&P is up 3.8%. Both indices remain a few percentage points below record levels. The tech-heavy Nasdaq is up 12.2% and is just below an all-time closing high registered last Thursday.

Trade War Dims Growth Forecast

 

Raphael Bostic, president of the Atlanta Federal Reserve, said on Monday that the intensifying trade tensions have dimmed his forecast for economic growth. The Fed official said the spats on tariffs effectively wiped out the optimism of businesses on corporate tax cuts.

In a prepared speech in Georgia, Bostic said he began 2018 picking up from businesses about their positive sentiment on the tax cuts. “However, that optimism has almost completely faded among my contacts, replaced by concerns about trade policy and tariffs,” he said. Business leaders are expressing concerns to Fed officials about the changing US trade policy.

Senate Votes to Keep ZTE Ban

 

U.S. Senators disregard party lines and voted overwhelmingly to reinstate the country’s ban on Chinese equipment maker ZTE Corporation. The voting result is 85-10 in favor of the ban. The Trump administration granted key concessions to ZTE. Among them is the payment of a $1 billion, top management shakeup, and $400 million in escrow for future violations.

However, the U.S. Senate will undo the agreement. A group of lawmakers from both parties amended the National Defense Authorization Act to include an amendment to reinstate the sanctions against ZTE.

U.S. Exempts Apple on Tariffs

 

The New York Times reported on Monday that the America will not impose tariffs on iPhones assembled in China. It was reported that it was U.S. President Donald Trump himself who told Apple Inc.’s (AAPL) CEO Time Cook about the exemption.

Sources say that Cook went to the White House last month and met with Trump. He warned the president that his trade policies could have adverse effects on Apple in China. There are fears that imposing tariffs could impact the U.S. technology sector as processor and memory chips were added to the list.

Intel Plans Shift in Production Strategy

 

The revised tariff list worries Intel Corp. (INTC) because U.S. trade officials added processor and memory chips to the list of targeted goods. Both items are their main sources of revenue. INTC dropped 3.4% to $53.22 on Monday on news of a downgrade by Northland Capital Markets. It also pulled down the Dow Jones Industrial Average.

But the world’s biggest chipmaker is starting to look for other avenues to lessen the severe effects of the tariffs. Intel could shift its production strategies. Intel has six water fabs used mainly for production before the products go to the assembly and test facilities. The production hubs are in the U.S. (3), Ireland (1), Israel (1), and China.

 

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