On August 28, 2019, something happened in the stock market that defied conventional wisdom, but it may have bolstered the reputation of the stock market as the ultimate forecasting mechanism.

Somehow, on that day, the market should have imploded; instead, it reversed higher and hasn’t looked back.

The United States Trade Representative (USTR) updated the latest round of tariffs on $300 billion in Chinese imports into the Federal Register – it became official. The market was already trading lower and appeared to be on the verge of collapse when it suddenly turned higher.

Dow Jones Industrial Average

• Opened: 25,712 -65
• Low: 25,637 -140
• Closed: 26,036 +259

The Dow rallied 400 points intraday on “bad” news. Since then, there have been numerous olive branches, and a much better tone leading up to the next round of trade talks.

Dow Jones Industrial Average

I still believe Wall Street investors are looking for any breakthrough on trade to happen after the election. There could be a pause in recently announced tariffs and other positive developments. On Tuesday, an article in the South China Morning Post suggested a deal could be made this year that covers 80% of the initial outline.

The idea of a dual approach was also mentioned in a Wall Street Journal article yesterday.

It remains to be seen how it all plays out, but China isn’t invincible. The legends of Mao, while offering inspiration, are harder to apply on a thriving middle class than peasants fighting back against oppression. The financial toll is far greater, and the political risk includes Hong Kong protests and Capital flight in the mainland.

Wall Street learned to live with tariffs, and stocks were taking off when the latest salvos were announced. The Street would be encouraged with calmer negotiations and stocks could move higher.

The Federal Reserve

To me, Jay Powell is a greater risk to the market, in part because the Fed has the power to put hundreds of billions into the economy and take hundreds of billions out of the economy. The Street is looking for a 25-basis point (bps) rate cut at this month’s Federal Open Market Committee (FOMC) gathering. The question is how defensive the Fed chairman will be during the question and answer period.

His verbal gaffes have caused as much harm as the unnecessary rate hikes in 2018.  I think Powell has gotten the message, especially after his European Central Bank (ECB) counterpart made comments about vigorous action to stop the economic slowdown in Europe and do whatever it takes to get more inflation in the system. It would be hard to hear Powell talk cavalierly about transitory issues that have been persistent.

New Highs Beget New Highs

Major global fund managers have blown it big time this year, and a year-end rally could wreck careers if these folks continue to watch from afar, sitting on too much cash and overseas stocks.  I suspect a breakout in the market will see money pour into the mix. The train leaving the station would gain steam quickly.

Yesterday, all but two sectors finished the session higher.

S&P 500 Index	+0.29%
Communication Services (XLC)	+0.29%
Consumer Discretionary (XLY)	+0.48%
Consumer Staples (XLP)	+0.41%
Energy (XLE)		-0.62%
Financials (XLF)	+0.53%
Health Care (XLV)		-0.03%
Industrials (XLI)	+0.06%
Materials (XLB)	+0.78%
Real Estate (XLRE)	+0.59%
Technology (XLK)	+0.54%
Utilities (XLU)	+0.22%

Approach

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

p>Today’s Session

 

The major indices are pointing to a higher open. If the Dow stays in the green, this will the be the 8^th consecutive day.  Hope springs eternal, and that’s what investors are feeling as relates to a solution between the U.S and China on the trade dispute. 

Boeing (BA) and United Health (UNH) are helping to propel the Dow higher, while chip and semiconductors are helping tech. 

Economic Data

Retail Sales came in better than expected, rising 0.4% in August, but down from +0.8% in July.  Without autos, sales were flat, which hasn’t happened since February. 

Web/online sales continued to lead the way and were up 1.6%.

Highlights

• Motor Vehicle Sales (I’ve pointed this out despite limited data)
• Building Materials
• Sporting Goods (I think that’s a dash for guns as politicians talk about confiscation)
• Internet huge $64.2 billion

Disappointing

General Merchandise $61.1 billion -0.3 and Department Stores -1,1 m/m -5.4 y/y 

Retail and Restaurant Sales	M/M	Y/Y
Headline	0.4	4.1
Motor Vehicle	1.8	6.8
Furniture	-0.5	0.1
Electronics	0.0	-3.5
Building Materials	1.4	1.0
Food (at home)	-0.2	4.3
Health & Personal Care	0.7	3.7
Gas Stations	-0.9	-2.3
Sporting Goods	0.9	2.1
General Merchandise	-0.3	1.0
Department stores	-1.1	-5.4
Miscellaneous	0.3	4.7
Internet	1.6	16.0

 

Import Prices Lower	Fuel	Non-Fuel
-2.0%	-8.7%	-1.0%

Comments

If the 'trade war' continues this will only lead to the chinese economy having a lesser impact on the global economy, a win-win for the USA that keeps growing in strength... Andrew B Newallo on 9/13/2019 3:22:48 PM

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