Yesterday, the market continued to gyrate but in a much tighter range than prior sessions. There was a sigh of relief as the Dow and the S&P finished higher, but the NASDAQ slipped under the weight of lower guidance from Cisco (CSCO). Of course, the cloud of uncertainty continues to cast a dark and foreboding shadow, even as economic data curbed fears of a recession.

The rally was decidedly cautious:

• Real Estate was the big winner (we have a core position in the sector, but we are looking to expand exposure in the model portfolio).
• Consumer Staples (we have to brush our teeth).
• Utilities (we have to pay our light bills).

S&P 500 Index	+0.25%
Communication Services (XLC)	+0.17%
Consumer Discretionary (XLY)		-0.17%
Consumer Staples (XLP)	+1.50%
Energy (XLE)		-0.62%
Financials (XLF)	+0.50%
Health Care (XLV)	+0.35%
Industrials (XLI)		-0.11%
Materials (XLB)	+0.04%
Real Estate (XLRE)	+1.40%
Technology (XLK)		-0.18%
Utilities (XLU)	+1.29%

The Market Breadth was not very convincing, however.

NYSE

• Advancer: 1,567
• Decliners: 1,385
• New 52-week highs: 143
• New 52-week lows: 297
• Up volume: 1.57 billion
• Down volume: 2.54 billion

NASDAQ

• Advancers: 1,310
• Decliners: 1,800
• New 52-week highs: 68
• New 52-week lows: 307
• Up volume: 976 million
• Down volume: 1.42 billion

Trade War

While on his way to a campaign event in New Hampshire, President Trump said China is making more positive overtures, including potential agricultural purchases. That would be great news. However, I must say, beneath the tweets and negative scuttlebutt, there were positives from China’s foreign ministry, including the revelation of constant communication between the two leaders.

Foreign Ministry Spokesperson Remarks on August 15, 2019

Q: On August 14, US President Trump said in his tweets that "Of course China wants to make a deal. Let them work humanely with Hong Kong first." He also suggested a possible meeting with the Chinese leader. I wonder what China’s comment is.

A: Hong Kong affairs are entirely China's internal affairs. As we noted, President Trump also said previously that "Hong Kong is a part of China. They'll have to deal with that themselves. They don't need advice." We hope the US side will keep its word.

China holds a consistent and clear position on China-US trade talks. We hope the US can work in concert with China to implement the two Presidents' consensus that was reached in Osaka, and to work out a mutually acceptable solution through equal-footed dialogue and consultation with mutual respect.

Regarding high-level communication, the Chinese and US Presidents have remained in contact with each other via meetings, phone calls and letters.

Portfolio

Communication Services	Consumer Discretionary	Consumer Staples
1	3	1
Energy	Financials	Healthcare
1	1	1
Industrial	Materials	Real Estate
2	3	1
Technology	Utilities	Cash
1	0	5

Today’s Session

Housing starts plunged to an annual rate of 1,191,000 or 4.0% , which missed Wall Street’s consensus of 1,240,000.  The headline is disheartening, but a closer look at the data, including permits, could signal a positive infection in single family homes.  There were increases in starts in North East, Midwest and West; only the South was lower.

Starts

• Single family 876,000 +1.3%
• Multiple 303,000 -17.2%

Permits

The annual pace of 1,336,000 units was a sharp 8.4% increase, and well above consensus of 1,270,000.  The increase was driven by a 10.7% increase in South and +13.7% increase in West.

On the tariff front, JPMorgan is out with comments on tariffs and the potential impact on the S&P 500*.

• Trimming its 2020 earnings estimates for companies in the S&P 500 to $177 per share from $178 due to tariffs expected to take effect on September 1.
• The bank's strategists estimate that new round of 10% tariffs will add $400 per household per year to the $600 cost they estimated for earlier tariffs.
• That would wipe out a good part of the average $1,300 benefit per household from tax cuts, they wrote.
• “The impact from reduced spending could be immediate for discretionary goods and services since tariffs are regressive,” the strategists wrote.
• Companies to be affected by the Sept. 1 tariffs include Dow (NYSE:DOW), Caterpillar (NYSE:CAT), Harley-Davidson (NYSE:HOG), and Whirlpool (NYSE:WHR), the JPMorgan strategists said.
• For the Dec. 15 round of tariffs, Nike (NYSE:NKE), Apple (NASDAQ:AAPL), and Mosaic (NYSE:MOS) are likely to affected, they said.
• However, there's "a good chance" the tariffs will be reversed ahead of the 2020 presidential elections, they suggest.

*Source Seeking Alpha

Overall, this morning, the market is reacting to positive comments on trade talks from President Trump.  I suspect we could see a strong truce, if not a deal, before the election The market was okay with current tariffs, and the notion there wouldn’t be a resolution before that now infamous tweet roiled the market.  If we get back there, a lot of anxiety will be eased, and coupled with Fed rate cuts, the wind will get behind the stock market.

I suspect we could see a strong truce, if not a deal, before the election.   If we get back there, a lot of anxiety will be eased, and coupled with Fed rate cuts, the wind will get behind the stock market.

 

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