The market seems to be in full “risk-off” mode to start the day following losses in Europe. Treasury yields and crude are down further, while volatility is on the rise.
China media hint at export ban on rare earth materials
Figure 1: SOX SLIPS LOWER: The Philadelphia Semiconductor Index (SOX) had another rough day Tuesday and is suffering its worst month in 11 years. Worries about the China market weigh, and so do concerns that a general dark mood in the Info Tech sector could remain a headwind. Data Source: Philadelphia Stock Exchange, Nasdaq. Chart source: the thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.
Mouse Roars: Here’s some early summer news that sounds good not just for Walt Disney (DIS), but for the economy in general: Theme park attendance is at all-time highs. Attendance at the world’s 10 biggest operators of amusement parks increased 4% last year and reached the half-billion visitor mark for the first time, the Associated Press reported. This includes all kinds of amusement parks, including those water parks you take your kids to. It also includes the famous theme parks run by DIS, which benefited from new film-based attractions, the AP reported. If you’re wondering who the next-biggest amusement park operator is after DIS, it’s Merlin Entertainment Group, which owns Legoland. Still, Magic Kingdom in Florida remains the most visited theme park in the world.
It could be interesting to see if people keep packing their families into crossovers and heading to amusement parks at growing levels this year, considering the economic slowdown in parts of the world. Another question is whether DIS might suffer any attendance losses at its mainland China park due to the tension between the Washington and Beijing. In its earnings call early this month, however, the company said “business actually has been quite good lately” in China.
Risk Market? Speaking of China, stocks there have been doing worse than U.S. stocks since a month ago, when the trade dispute worsened. As of Tuesday’s close, Shanghai stocks were down 11% from their closing high of 2019 posted in mid-April, compared with about a 5% drop from highs for the S&P 500 Index (SPX). However, Chinese stocks are up 16% year-to-date, which is better than the SPX’s 12% year-to-date gains. Many investors appear to have embraced stocks in China and other emerging markets this year after recent weakness, but the ongoing trade dispute could represent a caution flag, especially with Chinese Internet stocks that might be hurt by U.S. tariffs and intellectual property disputes related to the trade battle.
If you’re buying those names, you’re buying more risk than normal, perhaps similar to the risk you might take on if you were buying shares of a company in litigation. So that’s an extra element to consider keeping in mind. That’s not to discourage people from having some assets in foreign market stocks, but only a reminder that we’re not out of the woods yet on China and there might be more downside to come.
Pay as You Go: One area of the market that’s rising lately is the payments sector, meaning credit card stocks and companies like PayPal (PYPL). The traditional credit card stocks like Visa (V), American Express (AXP), and Mastercard (MA) have done very well, but if we have an economic slowdown, it might make some people nervous about these names. Barron’s had an article over the weekend talking about the payment firms, and that might have helped those companies Tuesday. Barron’s even coined a cute little name for Mastercard, Visa and PayPal, calling them “MVP” stocks and noting they’re outpacing the FAANGs.
It’s kind of an interesting part of the market, because it’s a combination of Info Tech and Finance. It looks like MA, AXP, and V got some new life through their partnerships with Apple (AAPL). Square (SQ), another competitor in this space, hasn’t gotten it going as much on the stock market front, but it’s making a splash in the real world, as anyone who’s taken a cab ride recently may have noticed. And it looks like many younger people are increasingly using Venmo—a PYPL peer-to-peer payments product—to pay each other.
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