foxex: Reality Check

The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Tuesday's Headlines

1. Markets Fall as New Tariffs Take Hold

2. U.S. Manufacturing Declines for First Time Since 2016

3. Brexit Uncertainty Crushes Pound

4. Walmart Amends Guns and Ammunitions Sales Strategy

Markets Closed

Dow
26,118.02 -1.08%

S&P
2,906.27 -0.69%

Nasdaq
7,874.16 -1.11%

VIX
19.66 +3.58%

Bitcoin
$10,696.54 +3.50%

US 10-Yr Yield
1.466 -2.66%

(Credits: Minas Panagiotakis/Getty Images)

Markets Today

U.S. markets sell off as new tariffs take hold
Yuan slips to lowest level since 2008
U.S. manufacturing declines to lowest level since 2009
Brexit uncertainty punishes pound as PM Johnson's party unravels

Investors met a cold reality on the first day of trading this week as all major U.S. indexes sold off on trade uncertainty. The U.S. imposed 15% tariffs on an additional $112 billion worth of Chinese goods on Sunday, and China responded with 5-10% tariffs on $75 billion in U.S. goods. The tariffs did not come as a surprise to anyone, but the market reaction to them might have.

A report on U.S. manufacturing, which showed the first contraction since 2016 and the lowest levels since 2009, didn't help. The IHS Markit U.S. Manufacturing Purchasing Managers' Index™ revealed that manufacturing production in the U.S. is falling at an annualized rate of 3%. IHS Markit says, "deteriorating exports are the key to the downturn with new orders from foreign markets dropping at the fastest rate since 2009. Many companies blame slower global economic growth for weakened order books, but also point the finger at rising trade war tensions and tariffs."

Hiring has stalled and optimism about the year ahead is at its lowest since comparable data were first available in 2012. Reminder: We'll get the August nonfarm payrolls report (The Jobs Report) on Friday. Hiring has been relatively strong in 2019, but it's hard to see that continuing.

Yuan Drops to 11 Year Low

Meanwhile, the Chinese Yuan slipped to its lowest level against the Dollar in 11 years. China is battling an economic slowdown that was already unfolding before the trade war with the U.S. picked up steam. To be sure, the Chinese economy is still growing more than 6% per year, but it has been trending lower since January of 2018.

(Chinese GDP, courtesy tradingeconomics.com)

The trade war is certainly not helping matters, and the government has been trying to quell unrest in Hong Kong as activists continue to protest against the territory's leadership and oversight from Beijing. A weaker Yuan should help China's exports, but the trade war with the U.S.—its main trading partner—and a broad economic pullback in Europe—its second biggest trading partner—is putting pressure on the currency.

While China has been setting the levels for the Yuan against the Dollar and other major currencies through its control of the People's Bank of China, market forces have been dragging the Yuan down to multi-year lows.

Here's the Dollar against the Yuan over the past five years:

Related, but not related, a spokesperson for the Chinese Commerce Ministry says China will sue the US through the WTO dispute settlement mechanism over the latest round of tariffs. It's a symbolic move, kind of like the Trump Administration calling China a currency manipulator—but it shows how acrimonious the talks have become.

Brexit Breakdown

Pound falls to near three-year low vs. U.S. Dollar
British MP's revolt against PM Johnson's plan to suspend Parliament
PM's attempting to pass vote to delay Brexit

Speaking of currency meltdowns, the British Pound fell to lows it hasn't seen since Oct. 2016, as Prime Minister Boris Johnson's plan to ice Parliament out of a vote to delay or augment the U.K.'s plan to exit the European Union is under fire.

As we write this, British MPs (Members of Parliament) passed a vote in favor of seizing control of parliamentary business tomorrow, in a major defeat for Boris Johnson.

The result means Parliament will attempt to pass a bill Wednesday that could block a no-deal Brexit.

Remember, Johnson boldly asked Queen Elizabeth to prorogue or "suspend" parliament for several weeks so he could push a hard Brexit by the Oct. 31st deadline.

Dr. Phillip Lee, a major member of the U.K.'s conservative party, of which Boris Johnson is the leader, defected to the Liberal Democrat party this morning, effectively eliminating Johnson's majority.

Johnson has vowed to kick any MPs who voted against him this evening out of the Conservative Party. This story is continuing to unfold, so we recommend following the BBC's coverage throughout the night.

Here's the Pound against the U.S. Dollar in just the past year.

Walmart Pulls Back on Guns and Ammo Sales

The largest retailer in the world amends its arms sales policies
Increase in mass shootings in the U.S. prompts change
Walmart also asking customers to not bring guns into stores

In the wake of two deadly mass shootings at Walmart locations this summer, in addition to other shootings around the country this year, the nation's largest retailer announced broad changes to its policies surrounding the sale of firearms and ammunition, as well as its policy on carrying handguns in its stores. In a statement, Walmart CEO Doug McMillion said, "It's clear to us that the status quo is unacceptable."

The company announced the following changes:

"After selling through our current inventory commitments, we will discontinue sales of short-barrel rifle ammunition such as the .223 caliber and 5.56 caliber that, while commonly used in some hunting rifles, can also be used in large capacity clips on military-style weapons"
"We will sell through and discontinue handgun ammunition"
"We will discontinue handgun sales in Alaska, marking our complete exit from handguns"

Walmart stopped selling handguns in other U.S. states in the 1990's, so the discontinuation of those sales in Alaska marks the retailer's complete exit from those products.

In its quarterly earnings call last month, Walmart said it accounts for around 2% of marketshare for firearm sales in the U.S.

Shares of the biggest gun companies fell hard on the news, which also got a predictable reaction from the NRA (National Rifle Association), the biggest gun lobby in the U.S.

More News:

Why Bank of America Says Dividend Stocks are the Only Play Now

Silver Outpaces Gold as Investor Flee to Safe-Haven Assets

US Steel Stock Could Drop Another 40%

chart courtesy www.koyfin.com

Shares of American Tower rose by over 3% today following the signing of a multi-year master lease agreement with AT&T. Nextera Energy's stock price increased by almost 3% after the financial planning firm Bahl & Gaynor Inc. purchased an additional 427,760 shares of the company, giving them a total of 2,412,212.

Alexion Pharmaceuticals' shares continue to remain low since Friday, having decreased by almost 6% today, after a challenge was issued regarding the company's patents for its Soliris drug, which a U.S. patent board recently agreed to review. Ipg Photonics' stock price fell by over 5% following the short-term MACD indicator designating its shares as a Sell.

Word of the Day:

Official Strike

In light of the news that the UAW (the United Auto Workers), the major union representing auto workers in the U.S. and Canada, may call for a strike against U.S. automakers, we thought this term would be appropriate.

An official strike is a work stoppage by union members that is endorsed by the union and that follows the legal requirements for striking, such as being voted on by a majority of union members. Workers engaging in official strikes have better protections against being fired. An official strike is usually undertaken by employees as a last resort in response to grievances. An official strike may also be called an official industrial action, a strike action, or a strike.

(News messengers gather outside the NYSE in Oct. 1929 to read headlines. Photo courtesy Getty Images)

Today in Markets History

Sept. 3, 1929

On a sweltering 94-degree day, the steamy canyons of lower Manhattan are full of stock speculators back from the Labor Day hiatus. The Dow Jones Industrial Average peaks at 381.17, setting a new all-time high and closing up 27.1% for the year-to-date. Volume is a blistering 4.43 million shares. Radio Corp. of America, the hottest growth stock of them all, closes at $505 a share, up from $94.50 just 18 months earlier. Unfortunately, the Dow will not surpass this day's closing price for another quarter-century; it finally rises above 381.17 on Nov. 23, 1954. When you hear about stocks for the long run, do you realize how long long can be?

Phyllis S. Pierce, ed., The Dow Jones Averages 1885–1980 (DowJones Irwin, Homewood, IL, 1982), not paginated; Frederick Lewis Allen, Only Yesterday: An Informal History of the 1920s (John Wiley & Sons, New York, 1997, reprint of 1931 ed.)