Stocks ripped higher as investors weighted new headlines with potential implications in the ongoing U.S.-China trade negotiations against stronger-than-expected results from several major Dow components.
The S&P 500 (^GSPC) rose 0.89%, or 25.36 points, as of market close. The Dow (^DJI) rose 0.84%, or 214.66 points, led by a more than 6% jump in shares of Cisco. The Nasdaq (^IXIC) rose 0.97%, or 75.9 points.
President Donald Trump signed an executive order Wednesday evening declaring a national emergency and prohibiting U.S. companies from doing business with information or communications technology firms deemed to pose a national security risk. In the text of the order, Trump said that “foreign adversaries” were found to be “increasingly creating and exploiting vulnerabilities in information and communications technology and services…in order to commit malicious cyber related actions.”
The U.S. Commerce Department subsequently added China’s Huawei Technologies and 70 of its affiliates to the Bureau of Industry and Security (BIS) Entity List, banning the Chinese tech giant from purchasing parts and components from U.S. companies without approval. Huawei was not named explicitly in the executive order, but the U.S. has continuously accused Huawei of using its equipment to spy for the Chinese state. Huawei has denied these allegations.
The move comes amid protracted trade tensions between the U.S. and China, with the Trump administration’s allegations over tech issues including intellectual property theft and forced technology transfer central to the discussions. Huawei’s blacklisting could further provoke retaliation from the Chinese, given the company’s centricity to the country’s goals of scaling the ranks to become a global technology leader.
The news “around the Trump administration’s ban on Huawei products in the U.S. is just the latest For Sumter moment with 5G at the center of this divisive issue on the technology front between the two countries with now worries that more retaliatory tariffs can be deployed by China,” Wedbush analyst Dan Ives wrote in an email. To date, Beijing has promised to slap tariffs on some of $60 billion worth of U.S.-made goods starting in June as a retaliatory move against a tariff rate raised on Chinese-made goods last Friday.
A Huawei spokesperson responded to the ban saying that “restricting Huawei from doing business in the U.S. will not make the U.S. secure or stronger.”
“Instead, this will only serve to limit the U.S. to inferior yet more expensive alternatives, leaving the U.S. lagging behind in 5G deployment, and eventually harming the interests of U.S. companies and consumers,” the spokesperson said in a statement.
The U.S. and China are in a race to become global leaders in 5G technology, the next generation of mobile technology allowing for faster download speeds and wider bandwidth capacity. Blocking business with Huawei could undermine these efforts on the part of the Chinese by making it harder for Huawei to purchase U.S.-made parts. Huawei has already signed dozens of commercial 5G contracts around the world.
But the move could also potentially take a toll on U.S.-based suppliers, including Qualcomm (QCOM), Broadcom (AVGO) and Western Digital (WDC), along with other chipmakers that count Huawei as a customer.
STOCKS
Walmart (WMT) posted its best first-quarter comparable same-store sales growth in nine years Thursday morning, driven by strength in its U.S. e-commerce business. Adjusted earnings of $1.13 per share on revenue of $123.90 billion topped consensus expectations for $1.02 per share and sales of $124.94 billion. Comp same-store sales – a closely watched metric of efficiency for retailers – rose 3.4,%, and were in-line with estimates.
While still locked in competition with Amazon, Walmarts has carved out a niche in its well-developed web grocery business. The company has more than 2,400 stores offering grocery pickup in the U.S. and nearly 1,000 locations with delivery. E-commerce sales grew 37% during the period.
Separately, company management addressed the escalating U.S.-China trade situation and noted that they are “monitoring the tariff discussions and are hopeful that an agreement can be reached.”
“Our goal is to always be the low-price leader, and we will actively manage pricing and margins as warranted with our customers and shareholders in mind,” CFO Brett Biggs said in a statement. “Our merchant teams have been focused on this for months and continue to execute appropriate mitigation strategies.”
Meanwhile, Cisco (CSCO) topped Wall Street estimates and provided upbeat guidance in results delivered after the bell Wednesday, suggesting the company continues to foresee growth despite the specter of further deterioration in U.S.-China trade relations. Adjusted earnings were 78 cents, topping expectations by a penny, while sales of $12.96 billion beat estimates for $12.87 billion. The company sees adjusted earnings for the current quarter in the range of 80-82 cents per share and revenue up 4.5% to 6.5%.
The company – which serves as a bellwether of corporate spending given its position as a leader in producing routers, switches and other computer products – posted strong order growth of 4% for the quarter.
Addressing China concerns, CFRO Kelly Kramer said during a call with investors Wednesday that Cisco still has some manufacturing taking place in China, but has “greatly, greatly reduced [its] exposure working with [its] supply chain” and suppliers.
Boeing (BA) said in a statement Thursday that it completed development for a software updates to its 737 Max jets. The aircraft had been grounded globally after being involved in two fatal crashes within five months, impacting domestic air carriers including Southwest (LUV) and American Airlines (AAL) with the jetliner in their fleets. According to Boeing, the company has flown the 737 Max with updated software for more than 360 hours on 207 flights.
ECONOMY
Housing starts rose by a seasonally adjusted annual rate of 1.235 million in April, the Commerce Department reported Thursday. This topped expectations for 1.209 million privately owned housing starts, according to consensus economists polled by Bloomberg. Both single- and multi-family housing units saw gains in the month. In March, housing starts were upwardly revised to an annual rate of 1.168 million.
Building permits, which serve as a proxy for future home-building, rose to a seasonally adjusted annual rate of 1.296 million in April, better than the 1.289 million expected. March’s building permits were upwardly revised to a 1.288 million pace.
New jobless claims fell less-than-expected to a seasonally adjusted 212,000 for the week ending May 16, the Department of Labor reported Thursday. This was 8,000 more than expected. Data for the prior week was left unrevised. Continuing claims, however, fell more than expected to 1.66 million, below the 1.673 million expected. The prior week’s continuing unemployment claims were upwardly revised to 1.688 million.
