Recession Fears and Trade War Tension Causes Heavy Sell Offs
By Dale Gillham | Published 12 August 2019
Last week was an unforgiving week for shareholders as escalation of the trade war intensified, and fears of a global recessions panicked investors, resulting in a heavy sell off of shares. So what caused this massive sell off?
It was partly due to President Trump announcing a further 10 percent tariff on the remaining $300 billion in Chinese imports coming into the US starting in September this year. As a consequence, the falls were a reaction to the tariffs for US companies dealing with China and what the Chinese may do in response to Trumps announcement.
The president also accused China of currency manipulation, which is what I would refer to as the pot calling the kettle black. Following the announcement that the US would be imposing more tariffs, China announced it would cease to purchase farmed goods, which sent stocks further into the red.
In addition, the Fed Chairman, Jerome Powell, indicated that they may impose further rate cuts after cutting rates for the first time in ten years earlier this year, which had investors worried about a slowing economy and a potential global recession.
In my opinion, a global recession is unlikely, and the more people talk about it, the less likely it is to occur although that said, recessions are normally good for the stock market. My advice for investors right now is to stay calm and narrow your focus. Rather than being concerned about global economies, it is far better to concentrate on your own portfolio. If your stocks are going up, then stick with them and have an exit strategy in place in case they start to go down.
Now let’s take a look at how companies performed during reporting season.
Winners and losers during reporting season
Despite an overall positive earnings season, it was not enough to stop stocks falling heavily last week.
While Walt Disney reported record sales, it missed earnings estimates coming in at $1.35 a share, which was below analysts’ expectations of $1.76. Initially, it was expected that the $70 billion acquisition of Fox would impact earnings by around 35 percent, however, it actually ended up closer 60 percent.
Further concerns over the future outlook of Disney also had speculators worried with the stock down just over 2 per cent for the week. I like Disney, and believe they will do well in the coming years, so keep an eye on this stock.
HSBC also beat expectations after reporting earnings this week with second quarter profits up 4 percent to $6.2 billion due to increasing revenue and expense reductions. Initiatives to increase its market share in both the UK and China, and offloading unprofitable operations continue to be the main focus for the company moving forward.
Despite the markets downturn, Linde a multinational chemical company beat analyst expectations with profit and sales topping estimates. Linde also raised full year guidance for the second time this year, with its shares up over 2 percent for the week.
Uber reported for the second time since becoming a listed public company with revenues of $3.16 billion and losses of $5.2 billion. Ubers stock price was only down slightly, however, I anticipate that the stock will see continued downward pressure in the foreseeable future.
Once again, Kraft Heinz failed to file its financial results and its future is not looking bright as its shares have been down around 73 percent since February 2017. Right now, I believe there is further downside, which could see the stock trade down to around $9.70 in the coming months before it finds support.
Now let’s look at the S&P 500 Index and this stocks of interest for the week. Watch the video to find out more.
Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the award winning book Accelerate Your Wealth—It’s Your Money, Your Choice.
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