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Partial US-China trade deal nearly ready? Plus, Amazon shares tank

Written By | Oct 25, 2019
US-China trade deal, Amazon, stocks rally, normalized yield curve

Cartoon by Branco. Reproduced with permission and by arrangement with Comically Incorrect. (See link at end of article.)*

WASHINGTON – After a wobbly open, Friday stocks market action picked up the pace mid-morning. The weak open was likely due to fallout caused by the Thursday after-hours trading slaughter of Amazon (trading symbol: AMZN) shares. On the other hand averages moved deep into the green zone a bit later. We could attribute that roughly 11 a.m. pickup to a CNBC headline. The cable and online financial network posted a breaking headline claiming a US trade rep indicated a partial US-China trade deal may be near.

First, a word about China…

By “breaking headline,” I mean that CNBC just posted a headline on the alleged partial US-China trade deal. No story yet. I guess that’s what they really mean by “breaking.” But by the time you read this story, they’ll probably have the details Assuming they keep the headline URL, you might find the CNBC piece here.

At any rate, it’s clear that there’s more US-China trade deal news in the offing. Otherwise, Wall Street wouldn’t be lifting the Dow Jones Industrials up close to 200 points (+0.73 percent) as I write this column. Also because there’s no other hugely positive news around this morning aside from Amazon’s miserable numbers. (Although good numbers from King Chipmaker Intel [INTC] and Microsoft [MSFT] might be encouraging the bulls a bit, too.) And besides, all it takes is a US-China trade deal rumor to move this market in a positive direction.


Also read: US stocks on edge, as Impeachment-gate, China trade talks loom large

Letting the bulls out of the “China closet”?

Any notable improvement on the US-China trade deal front could unleash a stamped of bullishness, the likes of which we haven’t seen for quite some time. But after so many false starts and stops (not CNBC’s fault), a real, signed US-China trade deal including anything of actual substance could be just the tonic Mr Market needs to cut down on his afternoon nap time. No doubt any deal may have to do with agricultural products or minor stuff. Not Huawei. And definitely nothing yet that might cramp the Chi-coms’ ability to easily steal all our technical and manufacuring secrets. We’ll just wait and see.




Now, onto Jeff Bezos Country.

What happened to Amazon?

The retail, entertainment and cloud behemoth booked better-than-expected sales figures when it reported its Q3 numbers after yesterday’s closing bell. But the company missed analysts’ projections of its Q3 earnings: a big no-no. Perhaps even worse, while bragging about increased sales in the quarter due to its Amazon Prime Day promotion, the company forecast that Q4 sales – the Christmas season – might not be as robust as last year.

BANG! Down went Amazon shares in Thursday after-hours trading. The expensive shares were down well over $100 per share at one point. But some of that overreaction reflected the usually thin bid and ask spread you run into when you’re trading in the before- or after-hours trading donnybrook.

Is Amazon back in fast growth mode these days?

The company clearly missed its earnings projections, big-time, because it ramped up spending, big-time, on implementing the employment, equipment and technology upgrades needed to crank up its one-day free delivery promise for Amazon’s premium Amazon Prime customers. Numbers for it increasingly dominant AWS (Amazon Web Services) cloud computing division also stalled. But analysts also attributed this dip to hardware and software upgrades to improve those services as well.

In other words, just as stockholders were getting used to roughly two years of fantastic earnings numbers from the “new” profit-driven Amazon, Q3 demonstrated we might be back in the “old” Amazon zone for awhile. As always, you have to spend money to make money. And Amazon just had a big “spend” quarter doing just that. And the results of this upgrade may not show up in the next quarter. So some panicked, trading-minded machines and individuals puked out their shares last night and again this morning.

Amazon shares get hammered

AMZN traded as low as ~ $1,695 per share at this morning’s opening bell for about a 6-ish percent loss from Thursday afternoon’s official (pre-after-hours trading) 4 p.m. close. At the moment – about 11:30 ET – the shares are still down $32.28 per share from that close. But they’re trying to fight back, bouncing around $1,748 per share at the moment.

It’s anyone’s guess how the shares close today. Likely, they won’t get close to matching yesterday’s incorrectly optimistic 4 p.m. closing mark of $1780.78. In addition, expensively priced shares that get hit like Amazon just did, often go lower still, just a few days after attempting an initial recovery.

Speculating on AMZN in our portfolios

I picked up a single share Thursday morning hoping for a quick flip after the expected positive earnings report. Instead, Mr Market (and Bezos’ ambition) clobbered that lonely share. Which is actually why I only bought just one. Little guys like you and me can’t risk 100 shares of this stuff at a time. Do the math.

But, I figured if I did get hit, I’d buy a few more shares here and there after the smoke cleared. I don’t much like Jeff Bezos or his politics. But, as I’ve often said in these columns, investing is an amoral business. And Bezos generally coins money for his shareholders.

As a true 21stcentury Robber Baron, Bezos will eventually get trust-busted, even by a Conservative Republican administration (assuming we have one after next year).




But in the meantime, what yesterday’s and this morning’s sellers miss is the simple fact that Bezos is spending the big money to make only bigger money on his path to World Domination. Which is why, at least at the moment, small investors have a chance to take advantage of a rare buying opportunity in AMZN shares. Before they roar back out of the gate to new record highs one to three quarters from now.

Caveat:

I don’t recommend investments here. (As I noted in yesterday’s dissertation on the weird world of Cleveland-Cliffs.) This column is usually a trading diary thing. So, while I intend to add a bit to my tiny Amazon investment, you should make your own decision on these volatile, expensive shares before contemplating your own move. You can make a lot of money – or lose your shirt – in expensive shares like Amazon, Apple (AAPL), Alphabet-Google (GOOG and GOOGL), etc. So if insane volatility is something you can’t stomach, maybe a stable electric utility (i.e.,one that doesn’t turn the power off in California) might be a better bet for your idle funds. Just sayin’.

– Headline image: *Cartoon by Branco. Reproduced with permission and by arrangement with Comically Incorrect.

 

Terry Ponick

Terry Ponick

Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17