Stocks continue to test support at the 24,200 level. The Dow opened the day positive then fell over 400 points but as the day wore on rallied and closed with a gain of 34 points at 24,423. Trading volume was up. Banks struggled and tech stocks, led by chip makers, did well. Broadcom reported strong earnings and upped its dividend by 50%.
In the age of disruption there are many things that drive market volatility and today it looked like Brexit was the “fly in the ointment”, but Bank of America noted that money managers, while watching Brexit, are expressing rising levels of concern regarding an economic slowdown in China as more nations and companies begin to push back against “business as usual” with regards to China.
An example of this occurred over the weekend when Japan, along with Australia, New Zealand and the US backed away from purchasing 5G chips and network gear from Chinese based tech giants Huawei and ZTE citing concerns over cyber security risks. Regarding the chips from Huawei, it seems a lack of trust has surfaced, and buyers fear that any equipment purchased from Huawei might contain a “back door” which would allow illegal access by Chinese gubment officials into sensitive data and system integrity. It’s like when I was in the Army our cook, Sgt. “Rice” Pruitt, told me to be nice to him because “my hands are in your stomach”. With global tech buyers not wanting China to possibly have its “hands in their stomach” they could shift buying to US based chip and tech firms and this might explain why stocks like Intel, AMD, broadcom and Nvidia did very well in the markets today.
Last week, for the first time in 70 years, The US exported more energy than it imported. Since 2007, when the first gas well was fracked in Louisiana, the US has grown into an energy giant as natural gas reserve estimates went from 10 years to close to 100 years. Last week, the US Dept. of Interior added to the total when it said that two underground layers of shale in an area called the Wolfcamp shale and Bone Spring Formation straddling the Texas New Mexico boarder contain over 46 billion barrels of oil and 281 trillion cubic feet of natural gas. The USGS noted this could be multiple times bigger than the Bakken play in North Dakota. WTI crude oil today closed at $50.88 down about 3%.