The old Wall Street saying “buy the rumor, sell the news” was in full effect Monday. Following news released over the weekend that the U.S. and China are willing to restart trade talks, accompanied by some encouraging tweets from President Donald Trump to that effect, the major U.S. equity benchmarks opened significantly higher Monday.
Holding those big gains was a different story as the Nasdaq Composite and the S&P 500 closed higher by 1.06% and 0.77%. The Dow Jones Industrial Average started the week to the upside by 0.44%.
In late trading, about two-thirds of the Dow’s 30 members were higher, but that group did not include, perhaps surprisingly, all of the Dow’s technology components. Technology, the largest sector weight in the S&P 500, has been an epicenter for tariff talks. It is widely expected the group will rally if US-China trade hostilities ease.
President Trump cleared the way for Huawei, the controversial Chinese telecommunications company, to resume purchases of products from U.S. technology firms, as long as those goods are not related to national security. Even with that news, however, Dow semiconductor name Intel (NADSAQ:INTC) closed up just 0.38% today.
Trade Talk Winners in the Dow Jones Today
While there were some obvious disappointments today–we’re looking at you, Intel–many of the Dow’s best performers were names with high tariff sensitivity. Prime example: Apple (NASDAQ:AAPL), which added 1.83% to rank as one of the Dow’s best-performing components today. That’s a good start to the third quarter, a period in which the iPhone maker historically delivers for investors, but some analysts are cautious.
“Bank of America Merrill Lynch analyst Wamsi Mohan on Monday reiterated his Buy rating for Apple stock, but he’s becoming more cautious over the smartphone maker’s app store sales in China,” reports Barron’s. “Mohan cited third-party data on app store sales which implied Apple China app store sales growth went from 23% year-over-year in April, to 19% in May, and 5% in June.”
Another Dow winner on Monday was Coca-Cola (NYSE:KO), which added 1.34% after an arbitrator ruled the world’s largest soft drink maker can sell its own energy drink. That ruling could jeopardize Coca-Cola’s partnership with Monster Beverage (NASDAQ:MNST), a stock that found a way to close higher today, too.
“An arbitration tribunal ruled on June 28 that Coca-Cola Energy did not violate the non-compete clause in the company’s contract with Monster,” reports The Atlanta Business Chronicle. “According to the ruling, Coke can continue to sell the drink in the markets it has already launched in and can expand to other markets as it sees fit.”
JPMorgan Chase (NYSE:JPM) was another Dow leader today, likely a symptom of what we noted here last Friday. The bank has impressive plans to return major amounts of capital to shareholders via an increased dividend and bigger-than-expected share buyback effort.
Dow (NYSE:DOW), the only chemicals name in the Dow Jones Industrial Average (and a somewhat tariff-sensitive name at that), added 1.72% today and has recently been showing some signs of life. Read an article from last week about why the stock is inexpensive and may not be that way for long.
Bottom Line: Shifting Focus?
Following the G-20 summit, it is important for all investors to realize what happened. Simply put, two bickering sides said they are going to talk on cordial terms. What comes of those negotiations remains to be seen. The U.S.-China relationship is one with long-term implications and the U.S. deficit with China of $420 billion (in 2018) will not be erased overnight.
Trade issues with China are not put to bed, but with the trade meeting over, market participants will be looking elsewhere for catalysts. Second-quarter earnings will be one of the catalysts, but how negative or positive is yet to be determined.
“Heading into the end of the second quarter, 113 S&P 500 companies have issued EPS guidance for the quarter,” said FactSet. “Of these 113 companies, 87 have issued negative EPS guidance and 26 companies have issued positive EPS guidance. The number of companies issuing negative EPS for Q2 is above the five-year average of 74.”
Todd Shriber does not own any of the aforementioned securities.