Stock Market Today
Futures in the United States are trading flat after the notorious crackdown on the education tech sector going on in China. Investors should note that Tesla posted strong earnings for the second quarter after the bell rang in yesterday’s session. The three major indices posted gains in yesterday’s session, with the Dow Jones Industrial Average and the S&P 500 both rising by 0.24%. The Nasdaq, the tech-savvy index, also jumped 0.03% on Monday.
Investors should be aware that Beijing has set a significant profit cap on its $100 billion education technology sector. Education companies are no longer permitted to make profits, raise capital, or go public. Edtech, or education technology, has gained traction in recent years and has been a popular investment target, with revenues expected to reach $76 billion by 2024.
The event sent shockwaves through stock markets around the world, including the indices in the United States. The Nasdaq Golden Dragon China index, which tracks the performance of Chinese companies listed on US stock exchanges, fell 6% on Monday and 8.5% on Friday.
There is no doubt that the uncertainty surrounding the Fed’s next move, as well as disruptions caused by rising coronavirus cases and events in Asia, are forcing investors to cash out their profits before going on vacation this summer. However, investors should not be overly concerned because the Fed is expected to maintain its dovish stance in the coming months, and stock traders should closely monitor the performance of technology stocks this week in light of Tesla’s strong earnings yesterday.
The Palo Alto, California-based automaker’s net income soared above $1 billion for the first time in 18 years. The growing awareness of consumers related to the implications of climate change has shifted them to electric vehicles, because of which the company’s sales and margins have risen manifold. The margins from core auto operations increased from 22% in the last quarter to 25.8% now. This helped the company triple its earnings per share to $1.45 on an adjusted basis. Investors also positively reacted to the strength of earnings, as can be seen by a 3.2% jump in stock price to $678.40 in the after-market trading session.
Stock traders should closely watch the price action of Bitcoin moving forward as we are finally seeing a retracement in prices following a quick rebound of Bitcoin prices above $30,000. The bulls took control last week, breaking through the key resistance level of $36,500 and even reaching $40,000. The price movement has confirmed a double bottom pattern, which historically indicates a potential surge to $44,000. Investors should keep in mind that the next level of resistance is likely to be between $41,000 and $42,000.
On the fundamental side, Amazon is the most recent player to express an interest in accepting digital coins for its products and services. According to a job posting, the company is looking for a resource to work on the exploration of the blockchain space. The company plans to launch its own digital coin in 2022. Similarly, Tesla has stated unequivocally that it is willing to accept Bitcoins for its products once the industry transitions to the use of renewable energy. Traders should view these updates as early signs of the positive disruption that cryptocurrencies could trigger over the next couple of years.
Gold and the US Dollar
Gold prices are holding steady just below the crucial $1,800 per ounce mark as investors await the FOMC meeting, which is scheduled to be held this week.
Although a change in the policy rate is not expected, stock traders will be closely watching the tone of officials to see how the Fed will respond to macroeconomic changes such as updates on inflation and economic growth over the next few months. This would provide a hint to whether interest rates would be raised sooner as this is directly related to the performance of gold. A hike in interest rates would cause the dollar to appreciate and would increase the opportunity cost of holding gold and hence push its price down.
Investors should also be on the lookout for any news related to the inevitable tapering of stimulus, as large stimulus measures tend to support gold prices, which is considered a hedge against the depreciation of the currency and a rise in inflation. The dollar index has also been rising over the last 30 days, as investors anticipate a reduction in the highly addictive stimulus.
Asian Stock Markets
As of 11:08 p.m. EST, the Nikkei and the Shanghai Composite Index were up 0.35% and 0.18% respectively. The ASX 200 index was up 0.50% and Seoul’s Kospi surged 0.69%. The Hang Seng index in Hong Kong fell 0.45%.