On Thursday, the market dived on speculation over the impact of the arrest of Huawei’s CFO, who also happens to be the daughter of its founder. That kind of guessing has led to a ‘sell first, ask questions later’ phase in the market that has been roiling the market with violent gyrations, mostly moves to the downside. 

There is no doubt that investors are looking for a resolution to the trade battle that now admits it was long overdue. Any news that hints at a delay will trigger tantrums. The United States presented China with a list of 142 demands. It stands to reason it’s going to be a long time before there is a complete resolution.

This means Wall Street must be spoon-fed small victories, even if that means keeping talks alive.

Despite the arrest and possible extradition to the United States of a high-profile person that’s considered Chinese business royalty, it is unlikely either China or America is looking to take any steps backward in this process.  China has already delivered a lot more than naysayers said they would back in March.

Midway through yesterday’s session, we were reminded of the bigger issue of how the Federal Reserve shepherds an economy that continues to flash mixed signals on strength. The economic recovery and stock market rally are both considered to be long in the tooth, so there is a serious guessing game on how quickly it fades into a recession and a bear market.

On that note, I think we are a long way from both. In the interim, the market has to readjust for slower growth, but growth nonetheless.

On another note, the report from the New York Fed, suggesting strains developing among consumers.

Center for Microeconomic Data

The SCE Credit Access Survey (a must read https://www.newyorkfed.org/microeconomics/sce/credit-access.html#/experiences-credit-applications15) adds to concerns the consumer has peaked:

• Loan application rate: 47.8 -1.2% y/y
• Loan rejection rate: 21.2% +5.5 %  
• Lenders closing account (credit of store retail card): 7.5% (Oct 2018) 5.7% (Oct 2017) 4.2% (Oct 2016)

While the Fed added to the murkiness of the selloff early in the session, a report from the Wall Street Journal suggested the Fed will indeed be data-driven, instead of quarter hikes on autopilot. 

Investors need to understand that this does not mean the Fed is looking for the economy to fall off a cliff. They are sobering up to the fact its ham-fisted approach could derail the economy in which Chairman Powell talks about proudly and has said on many occasions that it can continue, and even get stronger.

In fact, in a speech last night, Chairman Powell remarked the U.S. Labor Market is “very strong” by many measures. However, the benefit of the overall expansion is still not reaching some communities.

The Message of Market

As I pointed out in the Afternoon Note yesterday, buyers began emerging before the WSJ piece focused on oversold stocks and momentum names. By the end of the day, the winners were a hodgepodge with Real Estate being the big winner, followed by Communication Services and Consumer Discretionary.

Market breadth was just as lopsided as I’ve ever seen it, especially the new highs to the new lows.

• NYSE: 35 New Highs - 648 New Lows 
• NASDAQ: 9 New Highs - 465 New Lows

Current WSS Portfolio Approach Portfolio Distribution

Nonfarm payrolls came in slightly below expectations.  The market like the number and equity futures come off their lows after the report was released.  The market is set-up to open flat.   We will have more details on jobs in the Afternoon Note.