Summing Up The Week

Earnings reports and tensions with Iran drove the markets early in the week, however, everything went crazy when the Europe’s Central Bank decided not to cut interest rates.

Get more details and see the news that moved the markets this week below! 

Market News

Tensions Heat Up in Iran

Iran continued to ratchet up tensions in the Middle East following Tehran’s seizure of a British tanker in the Strait of Hormuz on Friday, reported CNBC.

Historically, tension in the Middle East has caused oil prices to skyrocket, however, that doesn’t seem to be happening this time. Analysts point to the substantial increase in U.S. frakking operations leading to the U.S. no longer depending on oil from overseas.

That being said, geopolitical issues always move the markets, and this time will no be different if issues continue escalating.

Dept of Justice Looks at “Big Tech”

Even with politicians screaming about “Big Tech’s” domination of their respective spaces, analysts started worrying about the stocks of Alphabet (GOOG), Apple (AAPL), Facebook (FB), and Amazon (AMZN) after the U.S. Department of Justice announced they were opening a broad antitrust review of technology companies they believe may be in violation of antitrust regulation Tuesday evening.

As a result, the FAANG stocks (minus Netflix (NFLX), the “N” in FAANG, which is already down nearly -15% thanks to a disastrous earnings report) sold off during Wednesday’s trading.

By the way, just to reiterate my stance on Netflix, even with its current -15% discount, NFLX is not a buy, at least not as a long-term investment.

I won’t be interested in NFLX until it has a Price to Earnings Ratio (P/E) more in line with Disney’s (DIS). With Disney currently trading at a 16 P/E, that means Netflix’s stock needs to come down to $40-$41, a price cut in excess of -85% from its current levels.

Want to know why? Check out Get Irked’s Netflix vs. Disney feature story.

More China Trade Talks Next Week

Treasury Secretary Steven Mnuchin told the media he’s headed to China for trade talks next week. Most industry analysts believe the trade talks are far from over, with many predicting no reasonable resolution should be expected before the 2020 election, more than a year from now.

In light of this time horizon, the market is mostly ignoring small trade talk news, focusing instead primarily on company earnings, the Fed, and Iran tensions (in that order).

Maximum Pain: No End in Sight to Boeing’s 737-Max Fiasco

Boeing (BA) reported a negative quarterly earnings report, thanks to issues getting its 737-Max airline back in the air on Thursday. The 737-Max is (was) Boeing’s most popular product, and its grounding since mid-March following two crashes has wreaked havoc on the company and the stock, to no one’s surprise.

However, to make matters worse, Boeing warned during the conference call that it might reduce 737 Max production or even suspend output altogether should the delay be extended from its expected Q4 launch, reported CNBC on Wednesday.

Boeing’s (BA) stock dropped nearly -3% in response to the news during trading following their earnings report Wednesday morning.

JP Morgan: The Sky will Fall this Quarter

Jasslyn Yeo, a strategist for JP Morgan, warned there is a potential for a “significant” sell-off in U.S. stocks this year, even as early as Q3, reported CNBC on Thursday.

Being a Bear on the markets is a good gig: you get airtime on CNBC and other networks, plus no one gives you a hard time if you’re wrong – stocks headed higher rather than lower so who cares if you were wrong – we’re all richer!

On the other hand, being a Bull will get you smacked if you’re wrong – even if it’s just the short term. Witness all the hate thrown at Jim Cramer of CNBC Mad Money fame – even though he’s been dead right in the long-term; critics claim people lose money following his advice. Haters gonna hate.

In fact, Cramer wrote an interesting feature this week about Ray Dalio – the noted billionaire investor – who told everyone to sell their stocks and run from the markets back in late January 2019. If you’d followed Dalio’s advice and sold everything on February 1, you would have missed out on more than 12% of S&P 500 upside since that point.

Anyway, it’s hard to say whether Yeo may be right. She didn’t give any figures for what “significant” means, simply advising there would be “significant downside risk” for stock prices as we head further into 2019.

Right now, I have more cash on the sidelines than I’d like, so a sell-off would actually offer me the opportunity to put more of it to work. That being said, it’s always worth listening to both sides of market predictions – bulls and bears – so you can develop your own strategy for what to do with your investments.

Bad News? The Economy is Stronger than We Thought?

The European Central Bank (ECB) announced they would not be cutting interest rates, reported CNBC on Thursday. The ECB pointed to strong indicators that the economy is weakening, going so far as to state it doesn’t believe there are any signs of a looming recession. The ECB did say it might cut rates later in the year, but not at the current time.

The news sent U.S. markets lower as the strength in the economy might lead the U.S. Federal Reserve to follow suit by not cutting rates as expected next week. Although it may sound weird that news of a strong economy would send stocks lower, when it’s cheaper for companies to borrow money thanks to lower interest rates, they’re more likely to invest in their own growth which leads to more profits and higher stock prices.

U.S. Growth Slows… But Not as Badly as Expected

On Friday, the U.S. Commerce Department reported a Gross Domestic Product (GDP) deceleration during the second quarter, an increase of 2.1% down from 3.1% for the first quarter. However, Dow Jones estimates were for 2.0% growth, so the number was up slightly from Wall Street expectations.

Growth has been relying almost entirely on consumer spending, which further reinforces Jerome Powell’s thoughts that an interest rate cut would be prudent to protect the slowing industrial and commercial spending.

Next Week’s Gameplan

With this week marking the busiest one of earnings season, the majority of companies have now reported. This means all eyes are on Jerome Powell and the Fed next week  to see what they do with their interest rate decision.

All of my buying and selling strategies will revolve around what happens next after the decision is out (or isn’t). A move lower gives buying opportunities, a move higher means eyeing overbought positions for profit-taking.

This Week in Play

Stay tuned for this week’s episodes of Investments in Play and Trades in Play coming online later this weekend! 

Crytpo Corner

Bitcoin Price Action

Bitcoin lost yet another -6% this week after its drop to $9,071.00 last week. The Support of Last Resort has changed to resistance with Bitcoin struggling to recover and stay above the $10,000 mark.

Bitcoin Gameplan

If Bitcoin closes the week below the Support of Last Resort this Sunday (the end of Bitcoin’s week), we’ll likely see a significant selloff with some analysts believing Bitcoin may pull back to $7,000 before it tries again to break its high of 2019 at $13,868.44.

As I warn almost every week, the gigantic swings in the crypto sector must be planned for, whether that’s by using stop losses to get out of trades or by buying very small quantities at lower and lower levels. Regardless, this space continues to be the most speculative and the most volatile market out there. It’s crazy.

Trading or “investing” in cryptocurrency is not for the faint of heart and should only be done with funds you can afford to lose (if at all). Do so at your own risk.