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Morning Commentary

NICE BOUNCE

By Charles Payne, CEO & Principal Analyst
8/27/2019 9:36 AM

Yesterday, calmness returned to the market, but it happened on a late August day on Wall Street, which means light volume and skewed outcomes.  

Big news from the G-7 meeting came from a one-page communique that acknowledged the World Trade Organization (WTO) is antiquated and needs to be “modernized.”  I take that as a de facto admission China has flouted the rules and the rest of the G-7 supports the United States.

This is better than trying to rally the troops: getting Europe to ignore the riches of China’s Belt and Road Initiative (BRI), which would be harder to come by if they took a more forceful stance.

So, the market rallied with all 30 stocks in the Dow closing higher, and all sectors other than Materials finished higher.

S&P 500 Index

+0.84%

 

Communication Services (XLC)

+1.17%

 

Consumer Discretionary (XLY)

+0.70%

 

Consumer Staples (XLP)

+1.01%

 

Energy (XLE)

+0.25%

 

Financials (XLF)

+0.80%

 

Health Care (XLV)

+0.83%

 

Industrials (XLI)

+0.41%

 

Materials (XLB)

 

-0.05%

Real Estate (XLRE)

+0.54%

 

Technology (XLK)

+1.14%

 

Utilities (XLU)

+0.78%

 

The market breadth was fine - new lows dwarfed new highs, underscoring the lingering carnage.

Market Breadth

NYSE

NASDAQ

More on Durable Goods

Karina Hernandez: Research Analyst, Wall Street Strategies

With talks of a recession along the way, I crunched the numbers of the latest second quarter (Q2) Gross Domestic Product (GDP) report, understanding their numbers to a broader scale. Personal consumption expenditures remain strong at 4.3%. Private investment tumbled 5.5% due to challenges in global growth and tariffs.

I saw a trend in private investment from 2015-2016, where private investment fell into a "recession," possibly due to oil prices. However, the overall economy did not contract due to strong consumers. My thesis is that from what's yet to come will heavily depend on consumers.

See my in-depth segment, where I shared my letter to the Business Roundtable:

https://www.facebook.com/CharlesPayneFox/videos/435807913689540/

The United States of America-China Chamber of Commerce (USCCC) branch shows cracks in the notion American businesses can’t or won’t move supply chains. Moreover, only 30% say they are in China to make stuff to export to the United States. That’s great news and should be articulated, as the public demands more accountability.

If you have relocated or are considering relocating China-based manufacturing facilities to other

countries because of the tariffs, where have you located, or where are you relocating to (check all that apply)?

Options

Responses

Percentage

No plans to relocate

144

60.3%

Southeast Asia

59

24.7%

Mexico

25

10.5%

Indian Subcontinent

20

8.4%

United States

14

5.9%

What specific outcome of any trade deal is the most important to your company?

Options

Responses

Percentage

Return to status quo

102

42.7%

Equal enforcement of Chinese regulations for foreigners

35

14.6%

Increased market access

29

12.1%

Improve IPR protection

24

10.0%

End Chinese industrial policies

17

7.1%

Purchase more U.S. goods by China

7

2.9%

What is your primary strategy in China?

Options

Responses

Percentage

Produce goods or services for China market

103

43.1%

Produce goods or services for U.S. market

30

12.6%

Produce goods or services for markets other than China and the U.S.

22

9.2%

Today’s Session

What the Heck?

During the last several weeks the market has seen brutal volatility that has left many investors shaken, although the market’s resolve seems to underscore most are hanging in there. 

This morning equity futures have improbably been trending higher.  The two biggest down sessions over the last four weeks were triggered by events that were supposed to spell doom. 

Date

Event

Dow Jones

August 5, 2019

Yuan moves below 7 to one dollar

-768 points

August 14, 2019

Two and ten yields invert

-800 points

This morning the market seems to be yawning instead of panicking which leads me to ask what the heck is going on. 

The two- and ten-year yield have been inverted all morning.

The Yuan continues to get weaker against the US Dollar.

If the market can rally against the tide of events that just hit like atomic bombs, then you know there is a serious pent up demand to own US stocks.


Comments
Charles, what are your expert thoughts on Takada article on Marketwatch predicting Lehman like crash?

Thanks in advance

Dave Shaw on 8/27/2019 9:56:44 AM
Dave anything "could" happen but I think this article is very irresponsible. But these people keep taking shots and maybe one day they will be right after all economies and markets are cyclical. But underlying circumstances are so much different now than the lehman crash. In fact one could argue banks have been too cautious and forced to hold too much money which should be lent. There is a serious effort to talk the economy into recession and maybe get the computers to help with a crash - perhaps enough negative headlines gets the job done. But I won't invest on these kind of pieces and I hope individual investors don't miss opportunities or make mistakes from headlines and all the doom and gloom articles. CP

Charles Payne on 8/27/2019 12:02:17 PM
I find it incredulous and very myopic that 42.7% of respondents would say Return to status quo is top outcome and 14.6% said that Equal enforcement of Chinese regulations for foreigners was a top outcome. In other words my little piece of the world is more important than the macro environment for the future of fair and equitable global trade and economies.

garro on 8/27/2019 10:11:50 AM
Garro----I agree !

john on 8/27/2019 11:17:03 AM
"Antiquated and needs to be modernized" sounds like pour more money down the rat hole.

Robert Clanton on 8/27/2019 11:24:58 AM
 

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