Stocks pullback with Apple and Tesla in focus

Summary:

• US indices in the red as trade concerns reemerge

• Apple falls as Trump threatens iPhone tariff

• Tesla called to open lower after Chinese sales crash

Following an impressive start to the week, US indices are coming back under some pressure today with the US500 dipping back down to the 2655 level. Everything had been looking good for the bulls until right around the time of last night’s closing bell when Trump decided to offer his latest views on the trade spat with China. The US president stated that it is “highly unlikely” that he would accept an offer to avert his plans to raise tariffs on more than $200B Chinese goods to 25% at the start of next year.

US indices are trading in the red after Monday’s gains with concerns surrounding US-Sino trade weighing on sentiment. Source: xStation  

The forthcoming session doesn’t have too much by the way of important economic releases with the Conference board consumer confidence at 3PM the stand out. Fed speak could be of interest with Clarida having just delivered some comments and Bostic due up late at 7:30 PM. These two members could set the tone ahead of tomorrow where Fed chair Powell will deliver a keenly anticipated speech at the Economic Club of New York. The following are selected comments from Clarida’s speech:

• Gradual rate hikes appropriate

• Especially important to monitor range of data at this stage in US rate cycle

• Risks now more symmetric, less skew to the downside than before

• US economic fundamentals “robust”, GDP growth “strong”

• Labour market “robust”, wage growth picking up

Overall the tone here seems to be pretty hawkish, and anyone hoping for a dovish surprise will likely have been left disappointed. Ahead of next month’s rate decision there is a feeling that the bank may look to take a more cautious approach to further tightening given the recent market moves (not just in stocks but also in the US dollar), but there’s very little to support this here.

The battle lines for the US500 appear pretty clear going forward with the region from 2646-2655 providing some support while 2676-2684 has offered resistance. A break outside of one of these regions will likely lead to the next sustained move with 2748 an upside target and 2625 or even 2603 below. Source: xStation

During Trump’s comments last night he singled out Apple products as likely facing tariffs in a move that saw a steady day of gains erased in moments after the closing bell. Trump said that he might impose a 10% tariff on iPhones and computers which would come as a big blow for the tech giant that has endured a large fall in it’s stock price in the past month. Some numbers crunched by investment bank Baird suggest people may not be so willing to pay an extra $120 for the privilege to own the latest iPhone. After all, iPhone prices have already crept to the $1,000 level and scared off many from upgrading or getting into the Apple ecosystem. Assuming the 10% tariff is put into effect, Baird sees at least a 10% negative impact to consumer demand in the United States. Each 5% reduction in U.S. product revenue, to account for demand elasticity impacts, drops Apple’s earnings per share by roughly $0.25-0.30 according to Baird’s calculations. Baird would cut its 2019 profit estimate to $13 a share from $13.57 assuming the new tariff rate.

Apple shares have fallen by more than a quarter since the start of October with price also dropping below the 200 day SMA. A decent recovery yesterday was nipped in the bud by Trump’s remarks and the market is called to open lower by around 1.5% this afternoon. Source: xStation

Another stock in the news is Tesla with the automaker stating the sales in China crashed by 70% in October amid the ongoing trade war. The electric-car maker sold just 211 vehicles in the world's largest auto market in October, down 70% from a year ago, according to Reuters, citing an official from China Passenger Car Association. On Thursday, Tesla said it was slashing prices on its Model X and Model S vehicles in China by 12% to 26% to help offset some of the impacts from President Donald Trump's trade war. "We are absorbing a significant part of the tariff to help make our cars more affordable for customers in China," Tesla said in a statement sent to Reuters.

Tesla is called to open lower by close to 2% after the negative news but the stock has actually fared pretty well of late with the market back above the 200 day SMA. While the stock polarises opinion like few others it has traded nicely in a range from around 240 to 390 in the past 18 months and provided several opportunities to make money on both the long and short side of the market. Source: xStation