Trade war and legal issues of Qualcomm killed investors’ optimism | Finance and Markets

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The main indexes of the New York Stock Exchange ended today’s trading session into the red because of worries about the trade tensions between the US and China, and a drop in the value of Qualcomm shares.

The blue-chip index Dow Jones Industrial Average fell by 100.72 points, or 0.39%, to 25,776.61 points. The broader S&P 500 fell by 0.28% to 2,856.27 points, while the technology Nasdaq Composite fell by 34.88 points, or 0.45%, to 7,750.84 points.

Dow Jones

The CBOE Volatility Index, which measures the implied volatility of S&P 500 options, was down 1.34% to 14.75.

During the day, the Finance Minister Stephen Mnuchin said earlier today that it is not yet planned to travel to Beijing for a new round of trade talks with China. This lowered the hopes that the two countries would still be able to reach a deal in the near future.

The tensions between the two largest economies in the world have intensified since earlier this week the US administration imposed restrictions on Huawei’s access to the US market and their telecommunications network. On Monday, US officials said they would provide several temporary exemptions for exports to Huawei, giving some suppliers and customers of the Chinese telecommunications giant a 90-day grace period of these severe commercial punishments. This affected the stocks of export-oriented companies and chipmakers, which have business with Huawei.

Meanwhile, the Securities and Exchange Commission (SEC) will launch the first phase of the plan to assess how exchange rates and incentives affect trading against the backdrop of a number of cases that some exchanges have taken against the regulator in an attempt to stop the experiment. Stock exchanges will need to start collecting data on how brokers carry stock orders to the exchanges from the beginning of July to the end of the year.

The Securities and Exchange Commission approved the Transaction Fee Pilot project in December last year, whose idea is to check how lower payments on most stock exchanges to stockbrokers influence the behavior of brokers. This type of payment has risen to about 2.5 billion USD in 2018, and critics of this method point out that this may lead to a situation where brokers will send orders to their clients to the most paying exchanges, even if those orders can get better results elsewhere.

In the bond markets, the 10-year and 30-year US government bond yields declined to 2.382% and 2.808%, respectively.

Corporate stocks performance

The stocks of Qualcomm fell by 10.9%, reflecting its biggest daily drop since January 23, 2017, after a US judge ruled that the company had violated antitrust regulations against the competition in microprocessor manufacturing. The US District Court Judge Lucy Koh late Tuesday sided with the Federal Trade Commission, which filed an antitrust lawsuit against the company in 2017. Koh ruled that Qualcomm violated antitrust law by charging unreasonably high royalties for its patents and that its licensing practices “strangled competition”, and ordered the company to renegotiate all its agreements, and license its patents at “fair and reasonable prices”. She also said the company cannot sign exclusive supply deals with companies like Apple.

Following the news, the stocks of Apple Inc edged lower, wiping out 2.05% from the company’s market capitalization.

The stocks of Goldman Sachs Group Inc were also deep into the red, falling by 1.80%.

The trade tensions weight on the stocks of aircraft manufacturer Boeing, which lost 1.66%.

Meanwhile, Twitter, Ulta Beauty, Workday, Shopify and IBD Leaderboard stock MercadoLibre have more or less brushed off concerns about a trade war engulfing China and the US. The five stocks are up for the week or keeping weekly losses relatively light vs. recent big gains. All five companies have zero or limited exposure to the Middle Kingdom and their stocks are showing good uptrends.

The shares in Nordstrom Inc fell to 5-year lows, losing 9.25%, while stocks of Tocagen Inc fell by 38.66% to all-time lows.

The top performers on the S&P 500 were Target Corporation (+7.78%), Regeneron Pharmaceuticals Inc (+3.27%) and Advance Auto Parts Inc (+3.09%), while on the flip side were Lowe’s Companies Inc (-11.83%), Qualcomm Incorporated (-10.86%) and Nordstrom Inc (-9.25%).

Corporate earnings reports

After several years of sluggish sales and falling earnings, Target (NYSE: TGT) has gotten back on track in the past year and a half. In fiscal 2018, Target achieved a 5% increase in comparable sales, with strong growth in stores and a 36% surge in digital sales. Adjusted earnings per share (EPS) jumped 15.1% to a new record high of 5.39 USD. Target’s operating margin declined modestly last year, though, and tax reform was the main driver of the company’s earnings growth. The retailers underlying earnings trajectory improved further last quarter. Comparable sales rose 4.8%, driven by a strong 4.3% increase in traffic. Comparable digital sales jumped 42%, while comp sales rose a solid 2.7% year over year in Target’s stores. Management pointed to the toys and baby categories as particularly strong performers, indicating that the company is capitalizing on Toys R Us and Babies R Us having gone out of business last year. Crucially, Target’s operating margin improved to 6.4% from 6.2% a year earlier. Gross margin ticked down by 0.2 percentage points to 29.6%, due to rising fulfillment and supply chain costs. However, Target was able to more than offset this pressure through strong expense control, as selling, general, and administrative expenses fell to 20.8% of sales from 21.1% in Q1 2018.

The home improvement retailer Lowe’s cut its outlook for the year after a weak first quarter. The company cited rising costs and outdated pricing tools. Lowe’s recently acquired an analytics platform it says will modernize its pricing process and improve margins. The company earned 1.05 billion USD in the quarter or 1.31 USD per share. Adjusted earnings were 1.22 USD per share. The company had earnings of 988 million USD and diluted earnings per share of 1.19 USD in the first quarter last year.