Question of the Week

Should the U.S. stay in the World Trade Organization?

Yes
No

The market had to hang on to gains after a strong rally lost stream halfway through the session on Friday.  I am not reading much into it other than empty trading floors along with packed highways. Folks are hitting the road for long weekends and vacations.

Anxiety isn’t going on vacation, but we are learning to live with these headlines and the never-ending-negative scuttlebutt that is part and parcel of the resistance to this administration.  Remember, it wasn’t that long ago when Americans were celebrating so-called “green shoots.” Now, the great economic news is greeted with skepticism and doubt.

Energy was the big winner last week as crude surged to a multi-year high.

S&P 500 Index	+0.21%
Consumer Discretionary (XLY)	+0.26%
Consumer Staples (XLP)		-0.04%
Energy (XLE)	+0.81%
Financials (XLF)	+0.02%
Health Care (XLV)	+0.29%
Industrials (XLI)	+0.35%
Materials (XLB)	+0.45%
Real Estate (XLRE)	+0.31%
Technology (XLK)	+0.10%
Utilities (XLU)	+0.16%

 

There was rotation into more oversold areas such as materials and industrials, which has been a big disappointment.

I have to say, with all the negativity, I think the market has held up nicely. The fact is, there has been an amazing rally, and this consolidation phase has been reasonable, even if it was longer than usual.

Market breadth continues to be negative; of course, the inability to sustain gains into the close was also a yellow flag.

Still, for all the negative news and difficult sessions, June was a wash in the end. 

Recession Calling?

I’m sure there is a lot of the selling associated with the tightening yield curve. When the two-year yield is greater than the ten-year yield, it’s considered inverted, and it’s been a reliable harbinger of recessions.  There are also reasons why this could happen, but there is no doubt, big money is laying off risk.

What’s ironic is that the first big downside challenge of the stock market in 2018 came courtesy of the ten-year yield going too high. 

You got to love it.

Consumers Spending & Business Investment

I continue to say: look at valuations, which are very attractive, especially against the backdrop of a strong economy where business investment is growing, and consumers are spending.

It’s not just retail that has made a remarkable rebound in brick-and-mortar, but homebuilder orders and backlogs are also impressive.

Just consider the holiday this week that will see a record 46.9 million travelers, including 39.7 million hitting the road.  A couple of weeks ago, headlines suggested $3.00 a gallon for gasoline would destroy the economy.

It’s down a little since then, but it’s clear that when we feel flush, nothing can stop us from watching fireworks with Grandma on the Fourth of July.

The media will jump all over Canada’s implementing up to $16 billion in retaliatory tariffs against our retaliatory tariffs to scare Americans, as if it’s been snatched from the treasury department.  I agree with President Trump. America should easily win a trade war, but his administration will surely lose the media battle, which is unfortunate.

Should the United States Stay in the World Trade Organization?

It’s interesting that so many people point to a huge 85% winning percentage for America and a low 65% winning percentage for Mexico (although combined you must wonder which nations are losing these disputes).  But my question is what are we winning?

The World Trade Organization is a joke, where members self-identify and pledge, but are not obligated to live with trade settlements.  Consider this, China says it’s in the same “emerging growth” basket as the nation of Togo.

• China 2016 GDP $11,200,000,000,000
• Togo 2016 GDP $4,400,000,000

Should the United States Exit WTO?

We continue to fight the same fights over and over, while America jobs fade, and it’s harder for U.S. companies to compete in other markets.

China

DS362: Measures Affecting the Protection and Enforcement of Intellectual Property Rights

Request for Consultations received: 10 April 2007

Complainant:      United States

Respondent:       China

Third Parties:      Argentina; Australia; Brazil; Canada; European Communities; India; Japan; Korea, Republic of; Mexico; Chinese Taipei; Thailand; Turkey

https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds362_e.htm

DS542: Certain Measures Concerning the Protection of Intellectual Property Rights

In consultations on 23 March 2018

Complainant:      United States

Respondent:       China

Third Parties:      On 3 April 2018, Japan requested to join the consultations. On 4 April 2018, the European Union and Ukraine requested to join the consultations. On 5 April 2018, Saudi Arabia and Chinese Taipei requested to join the consultations.

https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds542_e.htm

Canada

DS103: Measures Affecting the Importation of Milk and the Exportation of Dairy Products

Complainant:      United States

Respondent:       Canada

Third Parties:      Argentina; Australia; European Communities; Japan; Mexico

Request for Consultations received:         8 October 1997

Mutually Agreed Solution notified:           15 May 2003

https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds103_e.htm

Let’s see how the market opens this morning.  But, understand there are powerful forces that want the market to pressure the administration to abandon its fight to make trade free and fair.  Hang tough.

 

Comments

I look forward to each mornings comments. I believe in our president’s direction and wish him God’s blessings. John on 7/2/2018 9:32:35 AM

No real crash to economy will happen until 2024 if it looks like a dem might get into office. ! James on 7/2/2018 10:45:01 AM

Thank you Charles for all you, Trish, Varney, Maria and the gang do. I watch you guys religiously. As to the poll. I am tired of the "New World Order" that Bush 41 was so excited about! Never embraced it then or now. Was happy Pres Trump pulled out of the TPP, pulled out of Paris Climate Change, and may, if the Canada and Mexico don't negotiate in good faith NAFTA. That "New World Order" has been dipping into the US piggy bank for far too long! I'm for pulling out of the WTO as well as the UN! We spend way to much for what little we get! Mike Coons on 7/7/2018 12:12:59 PM

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