Hold tight!

Hold tight!  Stocks offered a rough ride yesterday, rising into the close as investors chose to focus on what mattered: the economy.  Solid housing numbers, optimism on trade talks with China, and a trade deal with Japan helped propel stocks for a positive close.

 

MY TWO CENTS

 

1.  Capital Hill vs. Wall Street.  Thinking about it can’t easily be avoided.  After all, just two days ago House Speaker Nancy Pelosi announced that the House will begin a formal impeachment inquiry into the President.  This has only happened three times before… to presidents.  Andrew Johnson and Bill Clinton were both impeached but acquitted by the Senate.  Richard Nixon chose to resign in the face of his imminent impeachment.  So this is heavy stuff.  But what does it mean for investors?  Well… nothing really directly.  Let’s look at some history first.  Markets fell in the aftermath of the Nixon impeachment and they rose through the Clinton impeachment.  What was different?  THE ECONOMY… duh.  The economy during the Nixon era was failing rapidly and was on the brink of real recession.  During the Clinton era, the economy was running strong and the US was actually running budget surplus.  While today’s US economy is not quite as solid as during Clinton’s second term, the numbers still remain firm with continued low unemployment, low inflation, growth (albeit tepid), and an accommodative Fed.  Of course the global economy (aka everywhere else) seems to be falling apart, the US economy seems to be resilient.  So what are the new risks associated with the latest political folly out of Washington?  On the upside, the President may want to reach a rapid agreement with China in order to bolster his standings with voters… and congress.  On the downside, China may toughen their stance in negotiations, sensing the President’s weak position.  On the strong economy, I am constantly touting the consumer as being responsible for the ongoing growth of GDP.  I will repeat it again: consumer confidence IS critical to ensure continued growth.  On Tuesday morning the Conference Board released its Consumer Confidence Index, which came in well below expectations at 125.1, down from the prior month’s reading of 134.2.  The decline is heavily influenced by the Expectations Index, which declined from 106.4 to 95.8.  All of these numbers come from surveys completed prior to the now-infamous whistle blower.  Will all of the turmoil on Capital Hill affect consumer confidence which would ultimately lead to decreased spending?  Probably not significantly, but it must be watched vigilantly as the inquiry unfolds.  The latest events in DC also have many wondering about what might happen if a Democrat were to win the White House.  One thing is for certain, this administration along with the Republican Senate have been very pro-business in policy.  Democratic frontrunner Elizabeth Warren is not known for her laissez-fairepolicies.  Business investment has already been slowing in response to trade concerns and a changing of the guard in the White House could cause corporations to pull back further.  For now, the fiasco is a political one, and the markets seem to agree.  But if the contagion travels up the Northeast Corridor, things could get dicey.

 

2.  Trade lightly.  This week has been chock full of juicy headlines.  The UN General Assembly has spun off few good ones and the President used his allotted time to focus on his agenda with China, Iran, and globalism rather than focus on the intended topic of climate change.  We had a surprise uptick in US manufacturing and housing while consumer confidence waned.  All of which were contrary to their prior trends,  Brexit is well, you know, totally confusing even to British folks at this point with the UK high court ruling against the government.  The President is back in the political hot seat but he managed to get closer to closing a trade deal with Japan.  China has been buying soybeans, which is a good sign, but might really just be a practical move (see yesterday’s note).  Still the overarching weight on the chest of the market remains the trade war with China.  If you are having a hard time focusing on what matters, you are not alone.  The market however seems to be very focused on one thing, and that is trade.  Rightly so.  Markets started yesterday’s session in the red, looking for something other than politics to rule the day, and they found it in Presidential comments to reporters that a trade deal with China can come “sooner than you think.”  Markets shot up on the quote and continued to rally throughout the session.  Additionally the morning featured a solid beat in New Home Sales which topped estimates coming in up +7% for the month.  The market is focused.  Investors take notice.

 

 

THE MARKETS

 

Equities traded up yesterday, breaking a 3-day losing streak on renewed trade optimism and solid housing numbers.  The S&P500 climbed by +0.062%, the Dow Jones Industrial Average traded up by +0.61%, the Russell 2000 jumped by +1.11%, and the NASDAQ Composite Index rose by +1.05%.  Bonds traded off and 10-year treasury yields climbed by +9 basis points to 1.73%.  Crude oil slipped for a second day, down by -1.4%, as Saudi Arabia gets closer to bringing damaged production back on line.

 

WHAT’S NXT

 

– Quarterly GDP Growth is expected to come in at +2% annualized, in line with prior estimates.

– Pending Home Sales are expected to have grown by +1.0 month over month compared to last month’s pullback of -2.5%.

– Dallas Fed Robert Kaplan, St. Louis Fed ’s James Bullard, Vice Chair Richard Clarida, San Francisco Fed President Mary Daly, Minneapolis Fed Chief Neil Kashkari, and Richmond Fed Head Thomas Barkin will all speak today.  Lot’s to take in.

–  The treasury will auction off $32 billion 7-year notes.

– Rite Aid, Conagra Brands, Carnival, Micron, and Vail Resorts will announce earnings before the bell.

daily chartbook 2019-09-26