Your Tuesday Market Blip 7/31/18

Your Tuesday Market Blip 7/31/18

Stocks closed higher today as trade negotiations with China appear back on track. At the close the Dow gained 108 on heavy trade at 25,415. FANG stocks all rebounded along with banks, energy and material stocks. Earnings from Apple are due out after the close and Tesla will report tomorrow.

China is an interesting story. A recent article spoke of “debt Imperialism” being committed by China where they have lent money to poor countries so that those countries can invest in roads, bridges and ports as part of China’s One Belt One Road initiative. The only rub is that these countries then hire Chinese firms to build the infrastructure and do not really employ local labor. It also increases the debt load on the country and if they cannot pay back the loan they make concessions to China. One case in particular that is brewing is Pakistan. The Pakistanis borrowed $62 billion from China to build roads but lost a good chunk of the money through corruption. The US warned Pakistan against the scheme from the get go and the word out now is that Pakistan is broke and will apply to the IMF this fall for a bailout. The IMF is mostly funded by the US so it will be interesting to see how, if at all, this plays out but it does show how China plays ball to further their cause while the IMF/USA picks up the tab if things go bad.

Someone asked me why a stock like Amazon will sell off after a good earnings report. The most likely reason is that some institutional investors have both a core position and a non-core position in a stock like Amazon. They will hold the core position as long as the underlying theme remains intact, but the non-core position can be traded to take advantage of market swings. Fund managers and especially traders are prone to take non-core money off the table and lock in gains after an earnings report because they know it will be 3 months before they will get another crack at earnings and a lot can happen in the meantime. If the stock drops, then these same sellers could become buyers. Certain large investors rely partly on quantitative measures of risk to tell them when to add or reduce non-core positions. These big boys, when they move, often trigger action by short term traders “Flash boys” who can rush in or out on a moment’s notice.