US stocks claw back from an early plunge on Fed report

Updated December 6, 2018 - 5:13 pm

U.S. stocks clawed most of their way back from a deep slide Thursday that at one point had wiped out the market’s gains for the year.

An early plunge briefly knocked more than 700 points off the Dow Jones Industrial Average as the arrest of a senior Chinese technology executive threatened to cause another flare-up in tensions between Washington and Beijing.

The sell-off eased by late afternoon, however, after The Wall Street Journal reported that the Federal Reserve is considering breaking with its current approach of steady interest rate hikes, favoring a wait-and-see approach. That was relief to investors worried that the Fed might raise interest rates too fast, which could choke off economic growth.

“The Fed is trying to, in essence, come out and make it clear they are not on a rigid schedule of rate hikes next year,” said Quincy Krosby, chief market strategist at Prudential Financial.

Last week, stocks jumped after Fed Chairman Jerome Powell indicated the central bank might consider a pause in rate hikes next year while it gauges the impact of its credit tightening program.

The Fed has raised rates three times this year and is expected to boost rates for a fourth time at its Dec. 18-19 meeting of policymakers. That steady pace of rate hikes has begun to worry some investors amid growing signs that some sectors of the economy are hurting, including the U.S. housing market. At the same time, there has been growing evidence that global economic growth is slowing.

“The market seems right now to be focused on increased risks for a 2020 recession,” said Patrick Schaffer, Global Investment Specialist, J.P. Morgan Private Bank. “It’s a very hard market to buy when you see really strong signals that we are indeed late (in the economic) cycle.”

Gaming Stocks

Las Vegas casino operators with properties in Macau have been on a rollercoaster ride this week.

Shares of Las Vegas Sands, Wynn Resorts and MGM Resorts International surged Monday after President Donald Trump and Chinese President Xi Jinping agreed Saturday at the G-20 summit in Argentina to pause their months-long trade dispute.

However, the shares of the casino operators gave up nearly all those gains by Thursday morning amid concerns the trade truce lacked substance and following the arrest Wednesday night of the chief financial officer of China’s Huawei Technologies at the behest of the U.S.

The arrest threatened to sideline any progress made on trade between the two countries. Nonetheless, shares of all three casino operators finished Thursday in the green. The choppy trading in gaming names could continue with the news flow on trade.

“Trade tensions aren’t going away,” Schaffer said. “Contradictory statements from the administration have given some people a little bit of pause with respect to the optimism that people felt following the Argentina G-20 conference.”

Analysts are losing optimism that Macau can continue to generate growth amid the trade dispute. UBS analyst Robin Farley on Wednesday slashed her forecast for the Chinese enclave’s gross gaming revenue next year. Farley now expects gaming revenue to decline 1 percent in 2019 compared with her previous forecast of 5 percent growth.

“We believe Sino-US trade war might be having a material impact on higher-end gaming demand in Macau,” she said in her note. “We believe the trade war could hurt consumer and business confidence of players coming from key source markets in China.”

Wynn Resorts could be more impacted than Las Vegas Sands and MGM Resorts because it caters more to VIP visitors. MGM Resorts could grab market share next years as its new Cotai project ramps up, Farley says.

Las Vegas outlook

The stock market, including shares of gaming companies, have taken a beating amid concers that the global economy is seeing a slowdown. But local gaming executives have told analysts they project a strong 2019.

MGM Resort International executives this week told JPMorgan analyst Joseph Greff that they see better demand next year.

“We come away with the view that 2019 is shaping up [for MGM] to be much better than 2018,” Greff said in the note Wednesday.

Management of Everi Holdings, a maker of slot machines and casino financial equipment, told Stifel analyst Brad Boyer this week the company is not seeing any signs of weakening customer demand.

“Given the real-time nature and geographic diversity of [Everi’s] FinTech business, we were encouraged to hear that cash to the floor metrics are showing no signs of weakening,” Boyer said in a note Wednesday.

Airline data, too, shows no signs of an impending slowdown in Las Vegas in the coming months. Airlines have boosted air capacity into Las Vegas for early next year with February and March up 3.6 percent and 2.7 percent, respectively, according to data from McCarran International Airport and Credit Suisse.

The Review-Journal is owned by the family of Las Vegas Sands Corp. Chairman and CEO Sheldon Adelson.

Contact Todd Prince at 702-383-0386 or tprince@reviewjournal.com. Follow @toddprincetv on Twitter. The Associated Press contributed to this report.

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