Facebook And Trade Wars: What's Happening With The Stock Market?
06 April 2018 - 6:31PM
ADVFN Crypto NewsWire
The US stock market recently posted its worst week since Jan. 2016,
when weak economic data from Chain
sparked a global selloff, an event that rekindled worries over
global economic growth. Over the five days between March 19 and
March 23, US stocks fell roughly 6 percent, European stocks were
down roughly 4 percent, UK stocks were down 3.4 percent and Asian
markets were down by up to 4 percent, with Japan faring worst by
declining over 5 percent. The decline in the stock market came in a
month in which Bitcoin declined by over 35 percent to bring the
first quarter loss of the cryptocurrency to 47 percent.
On the first market day of the second quarter, the
S&P 500 Index dropped by 2.2 percent, the poorest start to the
month of April since the 1929 Great Depression, data from Bloomberg showed. By close of
market on April 4, the stock market had recovered from the April 2
slump with the S&P 500 Index closing 1.3 percent higher and the
Dow Jones Industrial Average closing 1.7 percent higher. By
comparison, Bitcoin prices have been relatively flat since the
start of the month.
For a number of reasons, one of which is the fact that
stocks benefited from the surge in the cryptocurrency market last
year, it’s possible to think that the recent struggles in the stock
market has to do with the dismal performance of Bitcoin this year.
Indeed, Bitcoin’s decline may have influenced stock prices, but
such influence is marginal. The stock market decline was down to
worries over global economies.
Fears over US vs. China trade wars
At the heart of the latest selloff are worries over
potential trade wars that are likely to ensue from the Trump
administration’s move to impose tariffs on up to $60 bln in Chinese
imports. The US government had conducted an inquest, dubbed the
“301 investigation,” into suspected unfair trade practices by
China.
The US government will publish a list of targeted
products in April. Robert Lighthizer, the US Trade Representative
who led the inquest, told legislators on March 22 that aeronautics,
modern rail, new energy vehicles and high-tech products would be
subject to the new tariffs. Lighthizer admitted that China is
likely to retaliate by targeting agricultural products from the US,
which rely on the Chinese export market.
The Trump administration has been upfront about its
intention to protect American goods and the latest tariff plan
proves that the government is serious. Trump will reportedly
consider taking further actions against China in
coming weeks, depending on the response to the first phase of the
tariffs.
The potentially negative effect that the tariffs and
future actions that the Trump administration might take on
international trade will have on the bottom line of US companies
that rely on international trade is partly what sent stocks lower
recently. This has been the consensus on Wall Street. As Brad
McMillan, chief investment officer at Commonwealth Financial
Network wrote in a note obtained by
MarketWatch:
“For companies that sell to China, or indeed any
country outside the US, the effects are likely to be negative—which
is why markets are reacting again. Even the best-case results would
still be worse, economically, than where we are now.”
Bruce Bittles from research firm Baird told CNBC “the market has been
priced for perfection,” leaving the “market vulnerable to
surprises” like the worries over potential trade wars. Ian Winer,
the head of equities at Wedbush Securities added:
"A global trade war, whether it's real or perceived,
is what's weighing on the market. There's this huge uncertainty
now. If China decides to get tough on agriculture or anything else,
that will really spook people.”
“We’ve got a confluence of events: We’ve got some
Facebook going on, some trade war going on, and higher interest
rates going on,” Paul Nolte, portfolio manager at Kingsview Asset
Management, Chicago told Bloomberg.
Social media privacy issues
Facebook has been under fire for how it handles user
data following news that Cambridge Analytica mined data
of 50 mln Facebook users without their permission. This sent shares
of Facebook down roughly 13.8 percent in the week ended March 23
and the stock is down roughly one percent in the month-to-date. The
revelation put pressure on tech stocks at large over heightened
concerns that they might not be doing enough to protect user data.
iShares U.S. Technology ETF, which tracks the performance of the
Dow Jones US Technology Sector Index fell from $182.95 a share on
March 12 to $165.68 a share on March 23. The ETF closed at roughly
$168.18 a share on April 4. Typically, if tech stocks struggle the
way they did, the overall stock market is definitely going to take
a hit too.
Jaime Cox of Harris Financial Group, Richmond,
Virginia declared the worries of entire
tech:
"The entire technology complex is worried about what
[Facebook founder] Mark Zuckerberg said last night [March 21], that
maybe ‘we should be regulated’". All of a sudden you have all of
these technology companies that are going, 'I can't believe he said
that,' because that would basically hurt technology companies'
earnings potential."
Simply put, the two events highlighted above — trades
and data security — are at the heart of the recent struggles in the
stock market. The global selloff of stocks in February triggered by
worries over a potential interest rate hike by the US Federal
Reserve also influenced market reactions to recent events as
well.
On the other hand, Bitcoin’s struggles have been down
to its acceptance, or the lack thereof, on various levels including
regulators and companies. The Wall Street Journal reported at
the end of February that the US Securities and Exchange Commission
(SEC) has “issued dozens of subpoenas and information requests to
technology companies and advisers” involved in the cryptocurrency
space. As more details of the SEC inquest became available at the
beginning of March, in addition to a report in Bloomberg that
suggested the Bitcoin regulation that the Chinese government
imposed wasn’t temporary, the cryptocurrency market, led by Bitcoin
began a downward spiral.
There is also the negative effect of the recent
advertising bans imposed by companies including Facebook and
Alphabet’s Google. Such ban sends a negative vibe to the public on
cryptocurrencies and ICO projects.
Unexpected direction
What is clear is that the recent stock market
performance has almost nothing to do with the performance of
Bitcoin and cryptocurrencies at large. For the most part, the stock
market struggles stem from investor panic over things that might
be. As Julianne Niemann of research firm Smith Moore said "The market has a
psychology right now of, 'when in doubt, get out. We'll figure out
later what happened.' "
If the downward trend of stocks continues especially
because of the political uncertainties around the Trump
administration, we might see investors look in the direction of
Bitcoin to protect their wealth given that the government does not
control it. This may inherently increase the demand for the number
one cryptocurrency. Researchers at the Commonwealth Scientific and
Industrial Research Organization found that political
uncertainties in recent years, such as the economic crisis in
Greece, uncertainties surrounding Brexit and the election of Donald
Trump as U.S. president have brought about an increased demand for
Bitcoin, pushing up prices in the end.
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