Saved by Tesla & AAPL hitting 1 trn Market Cap (Daily Close)
Global Markets Observations: World Equity markets started with a rout yesterday as Chinese stocks and CNY weakened further and as European shares shed 2%, taking along with them the S&P500 future that was also fragilized since last week’s serial FANG disappointment (and associated sharply falling share prices).
EM markets which had stabilized over the past week or so at the same time as US tech shares and other momentum shares started to roll over, were thrown back to the wolves, dragged down by Chinese markets which did not take well the announcement of a possible doubling in tariffs on up to USD200bn Chinese exports. More importantly, the announcement of US sanctions against Turkey (another increasingly weak geopolitical link if there ever was one) sent the Turkish lira and bonds reeling. The announcement of possible new sanctions against Russia weakened Russian assets as well. Renewed fears of tariffs against Europe which has already dented consumer and business confidence completed the picture of an aggressive US stance taking hold of market sentiment on international markets.
As the S&P opened for business, two “miracles” happened. Tesla announced it was “losing less money” than expected (squeezing its heavily shorted share price up 10%) and apple share prices won on “beat the number” game (despite stable iPhone sales). This had every media outlet focused on getting aapl to become the first 1trillion market cap share and it was good enough to sound an “all clear” on US shares (for the day) allowing the S&P500 and Nasdaq to squeeze their way back in positive territory with a 0.5% and 1% or so gain yesterday. So there we are again ... All supposed to forget international markets and currencies to buy Nasdaq shares as a hedge against everything around us falling apart? Not here... I admire the courage of Chinese and European people who will still dare to drive a Tesla in their home country after all this sapping activity of the US President and/or Congress. After all, Tesla is still going to be thrown under the bus (after all the shorts will be squeezed) in our view if anything because the company’s product line will be crushed by the competition next year by car makers building cars that people like to buy... For what it is worth as well, some 360 companies out of the 500 s&p500 companies have been heavily buying back shares for years which explained a large part of the earnings miracle as well (by simply reducing the float of existing shares) and since 1998 the number of listed US companies went from 8000 to 3500 or so which is like a dog eating its tail to look fatter, actively participating to its own self destruction and that of the US listed share market universe. Anyone buying the s&p500 today is buying a ridiculous amount of a ridiculously high-priced small number of US behemoths and whenever the tide turns, liquidity disappears… Whenever buybacks (some must have been triggered yesterday as well) appear, this offers short-term relief to the stocks that are left trading but it is bad long term (increasing leverage in a rising rate environment). The game might last a little longer thanks to the tax cuts (companies might not have to borrow as much to fund buy backs) but the deficits explosion and the coming avalanche of US treasury issuance will have to find bidders ... abroad to keep this going as well. It won’t be China. It won’t be Europe. It won’t be Russia (against which new contemplated sanctions are most likely a response to Russia dumping most of its US Treasuries). But maybe the next round of US “sanctions” will be imposed against any country that does not finance the drunkard’s debilitating habits. Who knows? What we see in any case is a polarizing world with mounting geopolitical tensions directly associated to economic weakness, itself inflicted by US economic and political aggression which will necessarily end badly if it continues. If this continues, we might soon be talking about war on top of economic cycles. But maybe that is just an explanation for yesterday’s action...certainly not an excuse. Today we will likely hear that more US workers (those still looking for a job) found a job with declining labor participation, desperately stable compensation and a rising inflation environment. Maybe it will be good for Amazon and apple as well. For a summary of what worked and did not yesterday, see our Leaders and Laggards report. This is a delayed and abbreviated version of our premium subscription-based report published ahead of the US and European session every day. 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