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Morning Commentary

CHINA ADJUSTS (BUT DON'T CALL IT BLINKING)

By Charles Payne, CEO & Principal Analyst
3/4/2019 8:07 AM
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The market did a lot of backing and filling, as it was still unable to lift off through the last hurdle of re-testing the all-time highs.

The Dow Jones Industrial Average came out of the gate strong on Friday (I’m still not sure why), but it came up short of a pivotal resistance hurdle of 26,191 (the high was 26,143). We’ll see what happens today, as the market should get a good start with news that both the US and China are prepared to lower some existing tariffs.

I was watching futures most of Friday, and they didn’t get demonstrably stronger after the report, but major indices were already pointing to a solid start.

China Adjusts

The National People’s Congress (NPC) has kicked off in China. All eyes will be on a potential lowering of the Gross Domestic Product (GDP) outlook and setting the stage for the country’s 3,000 delegates to go into session in two weeks. It’s high on the list of bills to be ratified, and that includes major adjustments to its foreign investment laws. There is also talk that entrepreneurs are going to make a great fuss over their rights.

Apparently, there will be a great push to change the state-driven economy, and its practice of ‘guojin mintui’, which means: “state firms advance, while private firms retreat.” Either way, things have changed from a year ago, and it is clear President Xi is retreating. 

Sector Watch

Industrials continue to defy all expectations and climb higher, but momentum is shifting back into Energy, Technology, and Communication Services. I continue to applaud the fact it’s not the same old names leading the way. 

S&P 500 Index

+0.69%

Communication Services (XLC)

+0.78%

Consumer Discretionary (XLY)

+0.81%

Consumer Staples (XLP)

-0.18%

Energy (XLE)

+1.84%

Financials (XLF)

+0.64%

Health Care (XLV)

+1.42%

Industrials (XLI)

+0.09%

Materials (XLB)

-0.13%

Real Estate (XLRE)

-0.12%

Technology (XLK)

+0.68%

Utilities (XLU)

+0.21%

Portfolio Approach

Everyone should be nearly fully vested and have names they want to buy and names they don’t mind taking profits on. Please contact your rep or research@wstreet.com if you need additional help.

Communication Services

1

Consumer Discretionary

4

Consumer Staples

1

Energy

1

Financials

1

Healthcare

2

Industrial

3

Materials

4

Real Estate

0

Technology

2

Utilities

0

Cash

1


Did the Media Almost Talk America Into a Recession in December?

Every day, I toggle the channels and listen to different news broadcasts, and there is no doubt it has become decidedly more negative; lurching more toward opinion than journalism. In late November, with the market slipping from concerns over the Federal Reserve, the media took to warning America that a recession is imminent.

There was a time when the notion that anyone was rooting for a recession would have been far-fetched. Last June, comedian Bill Maher shared out loud the sentiments many others were harboring:

I feel like the bottom has to fall out at some point…and by the way, I'm hoping for it because one way you get rid of Trump is a crashing economy.

Sorry if that hurts people, but it's either root for a recession or you lose your democracy.

Maybe it wasn’t everyone’s intention, but the media jumped on the recession bandwagon in late November and December. I think they almost made it a self-fulfilling prophecy.

Check out these headlines from the New York Times:

For the American Economy, Storm Clouds on the Horizon

Nov. 28, 2018

The Stock Market’s Dangers Are Easier to See Now

Nov. 30, 2018

American Capitalism Isn’t Working.

Dec. 03, 2018

What Is a Recession, and Why Are People Talking About the Next One?

Dec. 17, 2018

It wasn’t just the New York Times, of course

Trump’s big 2020 problem: The economy could be in recession

Washington Post

November 13, 2018

Many factors will impact the 2020 race for both parties: the Mueller investigation, House investigations, a recession, and a growing deficit.

USA Today

November 21, 2019

In the Real World

While all these headlines were blaring away in the month of December, America was enjoying amazing economic growth:

On Friday, we learned that personal income surged in December 1.0% or 150% better than expected, but spending plunged 0.5% as savings rocketed to 7.1% from 6.1%. I cannot remember the last time there was such a dramatic shift in savings, especially with wages erupting higher, and in December no less!

Initially, I thought the fret on Main Street was about the stock market. The Dow Jones Industrial Average was down -7.5% for the month. However, not enough Americans are in the market to have that kind of knee-jerk reaction.

I’m not sure how close we were to a recession, but I am now convinced the market swoon and retreat of consumers was a mini-panic triggered by America’s press.

Today’s Session

Reaction to a potential trade deal with China was greeted with contained excitement due in part to the fact a lot is already baked into the market, and by now everyone expects a deal.  There will be some handwringing over the details as opponents are already dissing the deals sight unseen.

I think it will be amazing and worth the fight, which by the way didn’t knock the American economy into recession, didn’t crush the American consumer and didn’t empower China’s belligerence more.  On the contrary, China is going to play ball to a greater degree than if we simply went hat in hand to ask the folks at the WTO to step up to the plate.

Let’s not force the issue.


 

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