The US stock market rose last week though the tech-heavy Nasdaq Index lost ground. There is optimism with the development of a vaccine despite the surges in COVID-19 cases in some states. Meanwhile, investors rotated out of tech amid valuation concerns and disappointed earnings report from Netflix.
A volatile week for Telsa
Tesla stock had a volatile day on Monday, after it gained 16% to $1,794.99 per share and lost its gain, closing at $1,497.06 per share. This could be attributed to California shutting down again, and Tesla’s factory is based in California. However, the next day, Tesla stock rose slightly, on the knowledge that it had an unexpectedly high number of vehicle deliveries in the last quarter and investors hope that this trend can continue. Also, analysts have set a new price target for Tesla stock at $2,322. Overall, shares of Tesla have gained 250% this year, and investors expect future gains.
Vaccine hope at Moderna
Moderna stock gained nearly 4% after trials were set to begin July 27th and would enroll 30,000 people at high infection risk. Despite the spikes in cases in many states, there is optimism that biotech and drug companies can come up with a vaccine in the near future. On Wednesday, shares of Moderna rose 6.8%.
Uncertain future for travel stocks
On the expectation of an economic reopening, American Airlines, United Airlines, and Royal Caribbean Cruise Lines rose 10%. Tech stocks have been stagnating, due to the shutdown in California. On Thursday, the Dow dropped around 192 points, 0.78%, due to steep declines in the stocks of travel and transportation companies. Norwegian Cruise Lines dropped 13.487%, the biggest loser of the day. Carnival Corporation dropped 8.811%, and American Airlines dropped 7.85%. Cruise lines saw larger drops in value because they are for recreation only, while many people who still use airlines do so for business purposes.
On a different note, Twitter stock fell 4% in after hours between Wednesday and Thursday, because of some hackers who had taken over the accounts of high-profile users, like Barack Obama, Jeff Bezos, and Warren Buffet. The hack redirected users to a bitcoin scam, and tricked users into sending over bitcoin. The hacked tweet received over $100,000 dollars worth of bitcoin.
Mixed economic news
Currently, the US labor market recovery is slowing down, as coronavirus cases surge. On Thursday, 77,255 new cases, a new record, and 940 new deaths were reported. Job openings have declined in most industries, due to uncertainty about reopening and new spikes in cases.
However, retail sales rose 7.5% in June as stores reopened. Total sales rose from $487.7 billion in May to $543.3 billion in June, nearly back to pre pandemic levels. Nonstore retailers had a 2.4% dip in sales during the month, indicating that people are taking advantage of the loosening of lockdown restrictions and going out into brick-and-mortar stores again. Correspondingly, gasoline sales rose 15.3% and restaurant sales rose 20% since May. These increases are projected to flatten, as coronavirus cases rise and the extra unemployment insurance benefit ends on July 31st, influencing people to spend less.
Escalating tensions between the US and China and the new security law in Hong Kong
Amidst growing tensions between the US and China, China is putting money into Hong Kong and trying to preserve its status as a financial hub. Recently, China invoked a national security law criminalizing any act of secession, subversion, terrorism, and collusion with foreign or external forces, according to BBC. This law would give China even more control over Hong Kong – China will have control over how the law should be interpreted, it will establish a security office in Hong Kong with its own personnel, not subject to the jurisdiction of Hong Kong officials, this office can send some cases over to mainland China, some trials will be held behind closed doors, and people suspected of breaking the law will be wire-tapped and surveilled. Originally, Hong Kong had self-governing power, and a largely separate economic and legal framework from the rest of China, but China’s law erodes Hong Kong’s autonomy. The US said it would revoke Hong Kong’s special trading status between the two political entities. This entails that the US will halt defensive exports to Hong Kong, and restrict access to American high technology products. The subsequent political instability caused by this law has unnerved foreign investors, but China is trying to keep them by encouraging capital inflows, as the region around Hong Kong, Macau and neighboring Guangdong province constitute 12% of its GDP.
On Monday, a survey conducted by the American Chamber of Commerce in Hong Kong showed that 76% of respondents expressed concern about the new security law, 41% of that 76% were “extremely concerned,” but 64% did not have plans to move out of Hong Kong. 42% of respondents were pessimistic about their business prospects, and 25% said they were pessimistic in the short term and optimistic in the long term. 183 of its members were surveyed, 15% of the total membership. This data shows that there is overall uncertainty about Americans’ continued business prospects in Hong Kong.
On Wednesday, China vowed to retaliate after the US ended Hong Kong’s preferential trade status and cracked down on officials who cracked down on rights. Trump had signed the Hong Kong Autonomy Act, which penalizes banks doing business with Chinese officials who implement the security law. China’s foreign ministry criticized this decision as an interference of China’s internal affairs and would impose retaliatory tariffs. Trump has justified the Autonomy Act as a way to hold Chinese officials accountable. Hong Kong is a re-exporting hub, and goods that come from China can avoid US tariffs. By revoking the preferential trade agreement, China has to pay tariffs for exporting from Hong Kong as well.
Earnings and economic news this week
The second quarter earnings season is in a full swing. Major companies such as Coca-cola, Intel, Microsoft, Tesla, IBM and AT&T will report second quarter results this week. The economic news calendar is relatively light. In addition to weekly jobless claims on Thursday, the housing market data like new home sales, existing home sales and home prices will be released.