Take it slow

Take it slow.  Stocks closed mixed yesterday in response to mixed earnings and mixed economic data.  More rumblings from the British Parliament and a hyped-up speech by the VP were largely ignored.

 

MY TWO CENTS

 

1. Speak easy.  Last year Vice President Pence gave a scathing speech regarding China’s human rights and global trade abuses.  The former conservative senator has largely avoided controversy remaining in the shadows for two primary reasons, the first being that the administration is intentionally keeping him separated from the President’s battles and the second being, well, it is rather difficult to get attention when your boss is Donald Trump.  That said, it is interesting that Pence’s speech from 2018 marked one of the news highlights of his Vice Presidency.  So when his team announced that he would be giving another speech on China this year, analysts took note… and so did the trade negotiators.  Originally scheduled to be given right in the midst of tense negotiations, the Administration collectively decided to delay the speech until after some sort of deal could be reached.  Sound thinking.  Now that we have a handshake deal in the “Phase One” plan, Pence was given the green light to give his speech.  Many hope to see the Phase One deal signed next month at the APEC conference in Chile, but it is not clear that the wrangling between countries is complete.  In fact, WHILE YOU SLEPT, Chinese trade officials said that they were preparing a plan to buy as much as $20 billion in US agriculture products… BUT FIRST… the US would have to cancel some existing and future tariffs.  A phone call is apparently going to happen today between Vice Premier Liu and US Trade Reps.  Deal done?  Hopefully.  Body language is important and both sides appear to be indicating that they would like to see some progress, which is good for both sides.  Now back to the Veep, who gave his highly anticipated speech yesterday.   He didn’t disappoint, either.  He called out China on human rights abuses and malicious trade tactics.  He called them currency manipulators and accused them of stealing intellectual property.  He condemned Chinese military aggression in the region as being overly ambitious.  Finally, he stated that the President was not looking to decouple the Chinese and US economies but wished to have a constructive relationship.  All in all it appeared to be Pence firebrand speech 2.0.  The points were largely the same as those made by the President over Twitter and to reporters while boarding Marine One (his helicopter).  The market’s response?  Nothing new here.  Hopefully in his next year’s speech Pence will have some positive achievements on trade to report.

 

2. A view from above.  Stocks were all over the map yesterday.  Industrials were under pressure as 3M announced that they exceeded Wall Street estimates for earnings but missed on revenues.  They lowered future guidance citing increased pressure from a macroeconomic slowdown and China trade disruptions.  Twitter missed and its stock was hit hard, giving up most of its 2019 gains… they probably have benefitted from the trade war.  Microsoft beat as its cloud business continues to grow.  Amazon’s cloud business is growing too but it missed earnings as a result of investing heavily in its cloud business and its one-day delivery strategy (typical of Amazon).  Microsoft was up and Amazon was down allowing Bill Gates to overtake Jeff Bezos as the richest man in the world, though I am sure Jeff is not losing any sleep.  Intel had great quarter and beat estimates.  They further gave solid forward guidance stating that they expected cloud computing investments to continue to grow, which would continue to drive demand for its chips.  Speaking of demand, yesterday morning, the US Census Bureau reported that Durable Goods Ordersunexpectedly dropped by -1.1% after rising by +0.3% in the prior month.  The slip is the result of weak capital expenditures by corporations in response to decreasing demand for goods.  Meanwhile Manufacturing PMIsurprised on the upside coming in at a better than expected 51.6, which is a positive sign for the struggling manufacturing sector.  Any good news there is… well…is good news.  Finally, New Homes Sales slipped last month by -0.7% which was better than expected, most likely driven by lower mortgage rates.

 

THE MARKETS

 

Stocks posted a mixed close yesterday as cash moved from earnings losers to earnings winners.  The S&P500 climbed by +0.19%, the Dow Jones Industrials slipped by -0.22% held down by 3M, the Russell 2000 dropped by -0.17%, and the NASDAQ Composite Index jumped by +0.81%.  Bonds were unchanged and the 10-year treasury yields remained unchanged at 1.76%.  Crude oil advanced for a third straight session, trading up by +0.46%.

 

WHAT’S NXT

 

– University of Michigan Sentiment is expected to come in at 96.0 same as last month.  Watch this carefully.

–  Next week will be packed to the gills with macro data ranging from housing numbers to GDP figures to monthly employment numbers.  In the midst of it all, the FOMC will meet and announce its monetary strategy.  Check back on Monday for all the week’s details.

–  This morning VF Corp missed while Verizon and Charter Communications beat estimates.  We will hear from Goodyear Tire and Rubber as well as Philips 66 before the bell.

 

Come up and see me!

 

A final reminder that I will be spending time with clients in our New York and Jersey City offices all of next week.  Please reach out and set up some time to discuss your portfolio, talk about the market, or to grab a cup of coffee.

daily chartbook 2019-10-25