Market Outlook – June 26, 2018

Dow Jones Closes below its 200-Day Moving Average

 

On Monday, investors were gripped by trade war fears and are looking for safety. According to FactSet, the Dow Jones Industrial Average’s fall was significant. The blue-chip index lost 328.09 points to close at 24,252.80 or 29 points below 24,281.66, which its 200-day moving average.

Clearly, market breadth to start the week was unfavorable. The broader S&P 500 Index dropped 37.81 points (-1.37%) while the Nasdaq Composite Index was off 160.81 points (-2.09%). At the close of the session, losers led winners by a wide margin on the NYSE. The weakness was prominent in the tech sector.

Semiconductor Stocks Suffer Deep Losses

 

U.S. semiconductor stocks took a beating on Monday due largely to the news that the U.S. will implement new measures targeting the technology sector. Industry leaders Intel Corp. (INTC), Micron Technology Inc. (MU) and NVIDIA Corp. (NVDA) fell by at least 4% during afternoon trading. As a result, the Philadelphia Semiconductor Index dropped 3.7% and is now on track for its biggest one-day drop since April.

China’s Stock Market Reels from Emerging Trade War

 

China stocks are feeling the heat on Monday as the Shanghai Composite, their main benchmark, closed down more than 20% below its recent high in January. Today, the index fell 0.5%. In recent weeks, Chinese stocks have come under pressure. There are concerns over the strength of the country’s economic growth. The emerging trade war with the United States is contributing to investor fears.

The potential restrictions on Chinese investments in the U.S. added to the latest worry. However, Steven Mnuchin, U.S. Treasury Secretary, tweeted that the media reports on the investment restrictions were “false, fake news.” Mnuchin clarified that the measures would be “not specific to China, but to all countries that are trying to steal our technology.”

General Electric Unloading Assets

 

General Electric (GE), the Dow Jones’ worst performer in 2017, is preparing to end its 110 year membership in the blue-chip index. Walgreens Boots Alliance Inc. (WBA) will replace GE before the market opens.

GE continues to be under serious financial pressure. The conglomerate is trying to raise cash to lower its mountain of debt.  On Monday, GE disclosed a $3.25 billion deal to sell its distributed power business.

The private equity firm Advent International will purchase GE’s business that makes gas engines. The engines are used to generate electricity in remote places. GE’s Jenbacher and Waukesha brands as well as  the manufacturing plants in the U.S., Austria, and Canada are included in the sale.

The Wall Street Journal reported on Tuesday that General Electric plans to spin off its healthcare business and unload ownership in its oil services company Baker Hughes (BHGE). GE has yet to issue a formal confirmation.

U.S. FDA Approves First Cannabis-based Drug

 

GW Pharmaceuticals PLC (OTC: GWPRF) received a big boost on Monday after the U.S. Food and Drug Administration (FDA) approved its drug Epidolex. The drug is the first cannabis-based drug to secure the U.S. health regulator’s nod. Epidolex is a drug for epilepsy treatment.

The drug can now be administered to patients aged two years and older with Dravet Syndrome (DS) and Lennox-Gastaut Syndrome (LGS), rare childhood-onset forms of epilepsy that are among the most resistant to treatment.

U.S. FDA Commissioner Scott Gottlieb said, “This approval serves as a reminder that advancing sound development programs that properly evaluate active ingredients contained in marijuana can lead to important medical therapies.”

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