September 7, 2018
Apple 's stock dropped today on a Washington Post headline reporting that the U.S. government's proposal for tariffs may include products that are used in the Apple supply chain. Apple published a news release reiterating their concerns about the potential harmful negative impacts from such proposed tariffs. While the % drop in the share price was not material, when you have a $1 trillion market cap, even small % changes can be meaningful, and the timing of the step downward coinciding with the related news release suggests that the market is allocating approximately $10 billion of value to this risk.
The scary thing about the S&P 500 is that 6 key technology stocks represent more than half its value! The S&P 500 is not the broad diversified index that ETF and other passive investors believe they are exposed to. That's not to say today's news is a precursor for any material market trend reversal.
But today's tech news may be distracting investors from the real battle, namely whether or not the strong economic growth and employment trends will force interest rates higher at a faster pace than the Fed's forecast curve (dot plot).
The U.S. economy added 201,000 jobs in August according to the Labor Department, while the 3.9% unemployment rate remained unchanged. Both the jobs number and unemployment rate beat estimates. But the real indicator of rates is wage growth. The Bureau of Labor Statistics reported average hourly earnings growth of only 2.9% since July's report noting 2.7% growth. This lack of inflation in reported wage growth suggests that the bigger risk overhang to markets is still in a favorable outlook.
Dan Shainberg
#DanShainberg
#RecessionResister
@DanShainberg
#DanShainberg
#RecessionResister
@DanShainberg
