This morning we had two relatively significant pieces of news from Asia, neither of which are affecting US equity markets much, if at all. The latter piece, the South Korean President’s declaration of martial law, came as quite a surprise; the former, China’s ban on rare mineral exports to US chipmakers was less of a surprise, but almost certainly more meaningful to US companies. The reaction seems to be quite ho-hum.
The South Korea news certainly came as a surprise. There is always an extra degree of risk in that country because of its recalcitrant neighbor, but I don’t know that anyone had “martial law” on their bingo card for today. We saw a nearly immediate 3% drop in the won (KRW), but the damage seemed limited to that specific currency. We never saw much of a “flight to safety” bid in US Treasuries, so it tells me that the news isn’t resonating much with global investors.
From a US stocks point of view, we are (so far) seeing nothing unusual in equities other than some normal profit taking. The activity in the S&P 500 (SPX) is almost the mirror image of yesterday, when stocks meandered with modest gains. That said, the Nasdaq 100 (NDX) is holding onto almost all of yesterday’s tech-fueled 1% rally, while is only down about ½% after yesterday’s 2.6% leap . It seems that once again US equity investors are demonstrating their ability to tune out inconvenient geopolitical news – even if China’s export ban on semiconductor materials might affect some of their favorite companies.
One might have thought that China’s export ban on minerals such as gallium, germanium, and other raw materials that are used in chips, RFID, and LEDs might have led to a more negative response. This was China’s latest move in an ongoing tit-for-tat trade war over the strategically important semiconductor sector. On Monday afternoon, the Biden administration announced new restrictions on advanced memory chips and chipmaking equipment. That news didn’t affect the Philadelphia Semiconductor Index (SOX) which rose about 2.6% yesterday, so, if the market was able to shrug off that story yesterday, why shouldn’t it shrug off the next facet today?
Some of today’s ban had been factored in already, since prices for the strategic minerals had already risen dramatically in advance of the most recent news. Yet investors do seem rather blasé about the ongoing trade war in this key market sector. It is of course possible to expect the tensions to improve with the new administration, but the rhetoric so far suggests otherwise. Is this a case of investors perceiving the latest salvos to be part of the new normal, or is it a sign of complacency? Remember, equity investors usually have a difficult time assessing geopolitical risks unless they directly affect things like revenues, earnings, cash flows and the like – the things that directly affect a stock’s valuation. The semiconductor trade skirmish should indeed impact some of those factors for a key industry. Decide whether they merit your attention.
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These two events are negative indeed, but nothing compared to the enemy within. It is not Jan 20 yet, but Trump, the psychopath, is already damaging the US, he is threatening allies and commercial partners. I have never been so bearish. I am trading lightly, low deltas and low DTEs.
Don’t short Trump, at least he will bring peace rather than that warmonger Biden!
Yes, Just like Neville Chamberlin brought peace…
Maybe Trump, and to some degree the West, is what the US needs right now. Putting political ideology (cognitive bias) aside liberal democracy of the type that has emerged over the last couple of decades doesn’t come free. It has an economic cost that the taxpayer has to meet, or rather future taxpayers because liberal democracy has racked up enormous amounts of debt in the US and Europe and given impetus to the rise of the far right. France is on the verge of bankruptcy and political collapse, possible closely followed by German, the EU and even the U.K.(under the left wing woke centric Labour Party) Neo liberalism, the woke culture etc. etc. looks nice on the catwalk but costs a fortune to both buy and maintain. Hence the massive national debts racked up by Western economies. Trump’s no-nonsense, business like approach to politics may just save the US from financial and social ruin.
Anonymous….. l always pay attention to what Anonymous says. lol
You never know if it’s the top until time tells you that it was.
Complain all you want about Trump, but forget where.the economy is today because of Joe Biden. Also don’t forget about the millions of illegal aliens he allowed.to cross our border. A group including criminals, fentanyl trackers and terrorists. Their gift to this country is the deaths of American citizens that should never have died becuaae the illegal aliens should have never been hwr in the first place. Maybe we should have elected Kamala she could have spoken word salad and cackled in fear when confronting Putin or Kim Jung Un while spending our tax dollars to give sex changes to illegal aliens and incarcerated criminals all while restricting free speech to hide everything
Repeating Trump’s verbal diarrhea does not make it true no matter how often you say it. Half the country still has the brains to separate marketing from truth. I pray for you daily James that you too may see the light.
The one that needs to “see the light” is you my friend. The Democrats have sold out the country at every opportunity, they’re the real ones to fear.
Tell me you are in a cult without telling me you are in a cult. What an idiotic comment.
The ‘top; is a range of relative values, not a specific value.
80% invested in a bull market, with some cash to buy dips. But dips may not lower the price of a stock to the point it is today. Difficult decisions. I just like to keep some cash for leverage.
You only know you’ve topped after the fact.