the S&P 500 Index (SNPINDEX: ^ SPX) closed down 20 points, or 0.62%, on July 24, a second consecutive sell-off to close the week below what it started for the first time in nearly a month. Today’s decline was prompted by fears that tensions between the United States and China are escalating, as the White House steps up on its “tough on China” platform.
This uncertainty compounds ongoing economic concerns as the coronavirus pandemic worsens, sending more investors into gold as a cover. Gold futures have risen, surpassing an all-time high almost nine years ago.
Today’s stock sell-off has been large, with over 300 of the just over 500 S&P 500 stocks down today. Most notable was Intel (NASDAQ: INTC), with shares down around 16% on the day, as its rival Advanced micro-systems (NASDAQ: AMD) shares jumped 16% after Intel said its next generation of advanced chips would be delayed.
US-China tensions escalate
Earlier this week, the United States ordered China to shut down its consulate in Houston, Texas, on charges of economic espionage and visa fraud. China retaliated today, ordering the United States to shut down its consulate in Chengdu, China, calling it a “necessary” response.
President Donald Trump has made China a major and regular target since the start of his administration, citing the theft of intellectual property and the country’s illegal business practices. More recently, Trump has blamed much of the responsibility for the coronavirus pandemic on this country.
The timing of the Houston Consulate’s orderly shutdown comes as U.S. coronavirus cases rise, threatening to derail an economic recovery that is already showing signs of weakening.
Gold prices continue their strong rally and break record
The combination of growing economic concerns as the coronavirus pandemic accelerates and the threat of an intensifying dispute between the United States and China is pushing up gold prices. In general terms, gold tends to underperform as an investment during strong economic times. But during recessions and times of uncertainty, the precious metal tends to outperform stocks. This has turned out to be the case in recent years:
After losing 37% of its value between the peak of 2011 and the start of 2016, gold prices have jumped 70% and are on hand to overtake the SPDR S&P 500 Index ETF Trust (NYSEMKT: SPY) in total returns since. Some investors are betting that gold will hold up better than stocks, as long as economic and political uncertainty remains this high.
Intel lag is great news for AMD
Intel today announced second quarter results that beat expectations, with sales up 20% and adjusted earnings per share of 16%. Despite strong growth, semiconductor maker Intel disappointed investors by saying its next generation of microprocessors would be delayed by at least six months.
This announcement is a huge giveaway for competitor AMD, Intel’s smaller rival that has already brought 7nm scale chips to market, which has received rave reviews and strong sales. Although Intel is more diverse than AMD, its microprocessor business is still very large and investors fear that it will take years for Intel to catch up.
Joining Intel in the sale was a semiconductor equipment company KLA Corp (NASDAQ: KLAC), with stocks down nearly 8% at the close.
Coming next week: Industry giants set to report
Next week is a huge week for tech revenue, with Apple (NASDAQ: AAPL), Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL), and Facebook (NASDAQ: FB) all set to report second quarter results. Electronic payments giants Visa (NYSE: V), MasterCard (NYSE: MA) and PayPal Holding (NASDAQ: PYPL) are also expected to announce their quarterly results. Consumer goods giant Procter & Gamble (NYSE: PG) is also expected to report next week.
Add it all up, and next week you’ll have a sneak peek into the profits of some of America’s biggest companies. Check back next week for a more in-depth review.