foxex: Time Out

The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Wednesday's Headlines

1. U.S. Markets Rally as Trump Delays Auto Tariffs

2. China Spending and Production Slows

3. Apple Suppliers Hit by Slowing iPhone Sales

Markets Closed

Dow
25,648.02 +0.45%

S&P
2,850.96 +0.58%

Nasdaq
7,822.15 +1.13%

VIX
16.44 -8.97%

INV Anxiety Index
106.53 High

US 10-Yr Yield
2.379 -1.65%

Credits: Brian Bahr / Getty Images

Markets Rally on Auto Tariff Delay

U.S. markets dug out of deep losses again today on positive trade news. The DJIA climbed out of a 190 point drop to close up 99 points or 0.39%. The Nasdaq was the big winner, rallying 1.24%, as gaming and chip stocks posted solid gains.

President Trump has reportedly agreed to delay tariffs on automobiles for six months, according to various reports. Those tariffs, which would have been levied on European cars coming into the U.S., would have gone into effect this Saturday. After Saturday, the Trump administration would have another 180 days to decide whether to impose those tariffs, as long as it is in active negotiations with trading partners.

While this delay has little to do with the current tariffs China and the U.S. have imposed on one another, it does show a willingness by the White House to negotiate.

That helped move the market out of the red, and it was a big boost to European and U.S. automakers. U.S. automakers have been lobbying the White House not to raise tariffs on imports since they feared retaliatory measures from Europe - and for good reason. Ford, GM and Chrysler have been struggling with slowing sales, which declined 5% overall in April. The weakness is auto sales was the main reason that retail sales in the U.S. for April, declined 0.2%, according to the Commerce Dept, this morning.

chart via FRED St. Louis

Retail Sales Slow in China

Whether it's related to the trade war or not, China's economy is showing more signs of slowing, especially among consumers. Overall retail sales in April rose 7.2% from a year earlier, which was the slowest pace since May 2003, according to the National Bureau of Statistics (NBS). Retail sales rose 8.7% in March.

What China calls its Industrial Production Operation, which measures industrial production across all sectors, also had a noticeable slowdown in April, after a big spike in March. But, prior to March, production was also trending lower. This may lead U.S. trade representatives to think they have leverage in the trade talks.

chart courtesy: National Bureau of Statistics, China

Slowing iPhone Sales hit Apple Suppliers

Two key suppliers of components for the iPhone reported a stark slowdown in sales, which could foretell bigger problems for Apple. Foxconn and Japan Display both reported weaker than expected results this week.

Foxconn, one of Apple's key manufacturers, reported that sales fell more than 17% in the first quarter.

Japan Display, which makes LCD screens, also reported a 17% decline in total sales Nearly three quarters of its sales are for mobile phone display.

The slowdown in iPhone sales can be traced to at least two factors:

The new iPhone models are pricey - $1000 or more for the iPhone XS and XR. That's out of reach for many consumers. That, and iPhone users are holding onto their existing phones for longer - as much as 3-4 years, according to industry analysts. Those factors are a big reason that 2018 was the worst year on record for smartphone sales, as shipments fell 4.1%. Keep in mind that iPhones have only been around since 2007, so the history is not long, but the trend is weak.

Lifewire, our sister company, put together this handy illustration to show where iPhone components are sourced. It's a truly global product.

Here Comes the Whopper

Restaurant Brands International, the parent company behind Burger King, Tim Hortons and Popeyes Louisiana Kitchen, is laying out ambitious plans to open as many as 14,000 new stores over the next decade. The company has been grappling with slowing sales across its top three brands, with Burger King showing the steepest declines. It plans to increase its store count from 26,000 today, to more than 40,000 over the next 10 years. This is a reversal of the company's cost-cutting plans and reveals a new strategy from Restaurant Brands majority owner, 3G Capital. 3G owns 41% of the company, while Warren Buffett's Berkshire Hathaway and hedge fund Pershing Square are also major investors.

At 40,000 stores, Restaurant Brands will have as big a footprint as McDonalds and Yum Brands, which owns KFC and Taco Bell. Most fast food companies are facing traffic and sales declines as diners have moved from fast food to more fast casual and meal delivery options over the years.

image courtesy QSR Magazine

More News:

Bank of America: 10 Stocks To Survive A Full-Blown Trade War

Stock Inflows Surge As Investors Buy the Dip Amid Trade Carnage

When Your Spouse's Spending Might End Your Marriage

Charts courtesy of www.koyfin.com

Alphabet has been releasing plans for new ad-products at a company-run conference this week. Investors are impressed, which explains the stock improving more than 4% today.

Missing your quarterly projections will hurt any stock, and that's exactly what happened with Agilent Technologies, as the company fell short of its 2nd quarter sales targets.

Word of the Day

Treasury Inflation-Protected Securities – TIPS

A story came out today in Bloomberg talking about the sluggish 1.4% inflation rate (the target is 2%). Experts are suggesting that the Fed should cut interest rates if they want to increase inflation. In any event, if inflation does start to rise, investors will start to put their money in Treasury Inflation Protected Securities (TIPS). If you wanna learn more about what those are, well, you're in the right place:

"Treasury Inflation-Protected Security (TIPS) is a Treasury bond that is indexed to inflation to protect investors from the negative effects of rising prices. The principal value of TIPS rises as inflation rises. Inflation is the pace at which prices increase throughout the U.S. economy as measured by the Consumer Price Index or CPI."

photo courtesy Library of Congress

Today in History

Given the anti-trust case being taken up against Apple currently, this Today in History is fitting.

May 15th, 1911 - The Supreme Court upholds the U.S. governments decision to break up John D Rockefeller's Standarad Oil Co. on the grounds that it is such a powerful monopoly that is violates the rule of reason. (The rule of reason is an anti-trust term.)

Ron Chernow, Titan: The Life of John D. Rockefeller, Sr. (Random House, 1998), pp. 554-555.

Chart of the Day: VIX Reverts Back Below Key Moving Average

Wednesday marked the second day of a market rebound following this month's sharp 5% (S&P 500) drop from new record highs. The mid-week rally was driven in large part by news that President Trump will delay tariffs on imported automobiles by up to six months. Amid an escalation of the U.S.-China trade war, this delay in implementing auto tariffs was apparently enough to help spark an extended relief rally.

The relative calm on Wednesday after the nerve-wracking pullback of the past two weeks could clearly be seen in the VIX, or the CBOE Volatility Index. The VIX, otherwise known as the "fear gauge," is a real-time market index representing the market's expectations for volatility over the coming 30 days. Investors use the VIX to measure the level of risk, fear, or stress in the markets when making investment decisions. Generally speaking, when equity markets fall and investors become worried, the VIX tends to rise. And when markets rise, as investors are less concerned and have a greater risk appetite, the VIX tends to fall. As shown on the chart, market fear recently reached a peak last week as the VIX reached above 23 on fears that the U.S.-China trade war was seriously intensifying.

As markets have stabilized in the last two days, though, the VIX has reached back down below its 200-day moving average, a key indicator that generally helps to demarcate relatively high and low market volatility. The 200-day moving average is closely watched on a variety of stocks and indexes. On the VIX, as with other market instruments, the 200-day moving average is simply a running average of the closing prices for the past 200 trading days. In May, the VIX first broke out above its 200-day moving average on the day (May 6th) that equities gapped down after Trump first tweeted about increasing U.S. tariffs on Chinese goods.

Now that the VIX has reverted back below this key moving average, does this mean that stocks are now in the clear? Not necessarily, but investors seem to be less concerned that tariffs and trade wars will have any lasting impact on the economy and markets.