Bulls had a tough session in the stock market today, as headline risk continues to rise.
Equities were trading higher Friday morning before reports began circulating about President Donald Trump’s stance toward Chinese equities. The news instantly hit the S&P 500, which initially tried to recover from the losses, but was met by sellers at every turn until the final hour of trading.
I tweeted, asking who wants to buy ahead of the weekend as headline risk increases and retaliation becomes possible? I know I’m not pushing people out of the way to increase my long exposure.
The SPDR S&P 500 ETF (NYSEARCA:SPY) fell 0.5%, the SPDR Dow Jones Industrial Average (NYSEARCA:DIA) dropped 0.3% and the PowerShares QQQ ETF (NASDAQ:QQQ) slipped 1.2%. A late-session rally eased some of the deeper losses on the day.
Trump vs. China
The drama flared up as reports said Trump may consider limiting U.S. portfolio flows into China, essentially putting a limit on Chinese investments. Further, that could include delisting Chinese equities that trade on the U.S. stock exchange.
That includes names like Alibaba (NYSE:BABA), JD.com (NASDAQ:JD), iQiyi (NASDAQ:IQ), Huya (NYSE:HUYA), Baidu (NASDAQ:BIDU), Nio (NYSE:NIO) and others.
Worth pointing out is that BABA, JD and BIDU were all in InvestorPlace’s Top Stock Trades column today. It’s an ugly scene out there for Chinese stocks. Nio is below $2 now, while others are getting hammered as well.
Maybe it’s just jawboning ahead of next month’s trade talks. But for a situation that investors were hoping was on the mend, this was not a development they were looking for.
Small Caps, Big Concern
While the major U.S. indices were moving lower this week, small caps were really struggling. This group has not been able to get anything going in terms of momentum. While the other indices are up about 1% over the past year, the Russell 2000 is down close to 9%.
Same for the iShares Russell 2000 ETF (NYSEARCA:IWM) if you prefer that. It also lags its peers over the last three months, six months and in year-to-date time frames. In fact, the IWM lags on the three-year, five-year and ten-year time frames too.
That’s downright terrible.
Right now, the charts are not looking all that great. $158 resistance held firm on the IWM earlier this month. Now, the exchange-traded fund is testing down into its 50-day, 100-day and 200-day moving averages. Below the latter and under prior resistance in August near $150, and the IWM could fall even further.
Below $150 opens the door to the $145 and then to the $144 area. I’m not saying this to cause panic, but to make investors aware of the situation, technically speaking. On a rebound, IWM can gain some momentum over $152, but keep in mind there’s still overhead resistance.
Movers in the Stock Market Today
Chinese equities were the big focus on Friday, but other names were making headlines.
Micron (NASDAQ:MU) garnered a lot of attention, after reporting fiscal fourth-quarter earnings. While Micron beat on earnings and revenue expectations, the former sank more than 84% year-over-year while the latter slid more than 40% from the same period a year ago. Shares sank 11.1% as a result.
While some analysts are optimistic about Micron nearing a trough in its business cycle, management’s soft NAND guidance did little to make investors feel optimistic. Earlier this week we outlined the must-know levels in Micron ahead of the report. So far, support is not holding up.
Wells Fargo (NYSE:WFC) climbed more than 3.7% on the day and hit new 2019 highs at one point. By the looks of the stock’s price action, you can’t even tell it was a tough day in the market.
Shares were rallying after the company announced Charles Scharf as its new CEO. Scharf was the CEO and chairman of Bank of New York Mellon (NYSE:BK), which fell more than 4.5% on the day in response. Investors are hoping Scharf can get the bank back on track.
The move in Wells Fargo outperformed most of its peers, although Bank of America (NYSE:BAC), Citigroup (NYSE:C) and JPMorgan (NYSE:JPM) all ended solidly in the green on Friday.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long C and BAC.
