If only we were talking about the TV show The Blacklist. Alas, that’s not the case. Apparently, the White House has a blacklist of 28 Chinese companies it believes have ties to human rights abuses against Muslim minorities in some parts of China.
Secretary of State Michael Pompeo called those human rights violations “the stain of the century,” while China foreign ministry spokesman Geng Shuang implied there could be trade retaliation for the blacklist.
In Geng’s words: “We urge the U.S. side to immediately correct its mistake, withdraw the relevant decision and stop interfering in China’s internal affairs … China will continue to take firm and forceful measures to resolutely safeguard national sovereignty, security and development interests.”
In other words, trade tensions again ran high today, explaining why the Nasdaq Compsite slipped 1.67%, while the S&P 500 tumbled 1.56%. The Dow Jones Industrial Average lost 1.19%, as just three of its 30 members were higher in late trading. That’s one of the worst winner-to-loser ratios on the Dow in some time.
A Boeing Miracle
Meanwhile, Boeing (NYSE:BA) continues its recent run of seeming impervious to bad news. Yes, Boeing was down today, but the loss was modest considering that the company acknowledged that September deliveries plunged 70% on a year-over-year basis. In better news, the company did say it took its first order for a 737 MAX jet in seventh months.
While it’s encouraging that customers are again ordering the 737 MAX, the outlook for when that plane will be in service again is still murky. Plus, Boeing is dealing with other related headwinds.
For example, the Southwest (NYSE:LUV) pilots union is suing Boeing for $100 million, alleging that representations about the safety of the 737 MAX were “false.” The 737 MAX is often used for short and medium routes, Southwest’s bread and butter.
For those wondering where the $100 million suit figure is derived from, that’s easy. As a result of the 737 MAX being grounded, Southwest had to scrap 30,000 flights, costing pilots $100 million in lost wages.
Good News for the Dow Jones Today … Sort Of
Chances are that if you follow sports and/or geopolitical affairs, you’ve heard something about Houston Rockets General Manager Daryl Morey’s now deleted tweet voicing support for the Hong Kong protesters. Not surprisingly, that didn’t sit well with Beijing and in the aftermath of that tweet, Rockets owner Tilman Fertita then the NBA sought to distance themselves from Morey’s views, but China is still upset.
That gets us to Nike (NYSE:NKE), the world’s largest maker of athletic footwear and apparel. Given Nike’s intimate ties to the NBA, China is a marquee market for the company’s wares. While Nike stock was lower today, at least one analyst defended the name amid this China controversy.
“Concerns surrounding the impact of China’s spat with the NBA on Nike’s business in China are overblown,” said Susquehanna analyst Sam Poser in a note out Tuesday. “Proprietary checks indicate that the Nike brand in China remains exceptionally strong; Chinese consumers perceive Nike as a global athletic brand, not associated with any country or part of the world.”
Another Good News Loser
Shares of Microsoft (NASDAQ:MSFT) closed slightly lower, but as was the case with Nike, some analysts defended MSFT stock today. Jefferies analyst Brent Thill upgraded Microsoft to “buy” from “hold,” while boosting his price target on the largest U.S. company by market capitalization to $160 from $93. That new target implies decent upside from Tuesday’s close just under $137.
With Microsoft, there’s “a large diversified business with excellent visibility that has a clear line of sight into double-digit revenue growth for the foreseeable future,” said the Jefferies analyst.
Bottom Line
The ongoing U.S.-China trade flap is reminding investors of an important lesson: China takes its sovereignty seriously and doesn’t like outside meddling in what it believes are domestic affairs. Conversely, the country has, at least in the view of the West, long had a challenged human rights record.
At this juncture, assuming trade talks even happen, it appears unlikely that there will be breakthroughs of any substance and that could make for a volatile fourth quarter for stocks, if not an all-out sequel to 2018’s grizzly last three months.
As of this writing, Todd Shriber did not hold a position in any of the aforementioned securities.
