The heat is on

The heat is on.  Stocks closed out last week with modest gains after the President raised doubts about a trade deal.  Early gains were lost after Trump’s comments but equities clawed their way back into the green.

 

MY TWO CENTS

 

1.  What was supposed to be a quiet day. I often lament in my writing about the fact that there are no facts about the trade deal.  Information about progress in talks most often has the feel of propaganda.  That leaves investors in a very tenuous situation.  The US trade delegation, including President Trump, are rarely in synch with their messaging and the Chinese delegation… well that is actual propaganda.  Both sides continue to talk, which is positive.  Traders seem content to ride up equities on the slightest hint of positive news while largely ignoring negative news.  The President says the word “progress” and stocks trade up.  When things get a bit dicey, as they did last week when negotiators hinted that a deal would not be signed until December… well the market hiccuped but ultimately continued its climb.  When China announced that both sides agreed to roll back existing tariffs, the markets expectedly rejoiced.  When I reported the news here I cautioned that the US had not confirmed the rollback.  It is well known that the Chinese are seeking a removal of existing tariffs as part of any deal but the US has still not indicated a willingness to give up on its principal bargaining chip: tariffs.  Still, the stakes are high and both sides need a deal, even if it is a small one.  The Chinese economy is limping along and domestic agriculture is suffering setbacks from swine flu making China more reliant on agricultural imports.  In case you hadn’t noticed the US is officially less than a year away from Presidential elections and the Trump Administration could probably use a political win right about now.  Traders were somewhat confused when Trump told reporters on Friday that he had not agreed to remove tariffs, shedding doubts on the Chinese announcement from earlier in the week.  The market’s initial reaction was to sell off.  Ultimately though stocks came back later in the session closing slightly higher.  It seems that the markets too need a deal.  Expect more non-factual facts on progress this week as political wrangling heats up in DC.

 

2.  Never give up.  Consistency is important and I like to be consistent, so in the name of consistency I will highlight the consumer, always in my top five favorite topics.  In my defense, it’s not just me who believes that the consumer is key.  The Fed monitors consumers very closely.   Sure spending by businesses is important, but the consumer really drives the economy.  Lower interest rates provide consumers with more disposable income to spend, which should be good for the economy in theory.  However, if consumers are fearful about the future, they may put off making big purchases, which could really hurt the economy in its currently tender state.  This quarter is typically the strongest for the retail sector with the upcoming holiday season and positive sentiment must prevail. According to Friday’s University of Michigan Sentiment,  consumers are slightly more upbeat about the future with the Expectation Index growing from 84.2 to 85.9.  Regarding sentiment about their current situation, the index slipped from 113.2 to 110.9.  This may be a result of the increasingly tense situation in Washington.  Hopefully, consumers will look past the wrangling and focus on their holiday purchasing…Hopefully.

 

THE MARKETS

 

Stocks looked like they were in rally mode when Friday’s session kicked off.  Trade optimism was in the air until the President stopped the music by announcing that he had not agreed to any tariff rollback.  Perter Navarro, the President’s Director of Trade and Manufacturing also reported that there were no agreements to roll back tariffs, spooking investors further.  The negative comments were not enough to send traders home and stocks managed to rally into the close, ending the session up slightly.  The S&P500 climbed by +0.26%, the Dow Jones Industrial Average inched up by +0.02%, the Russell 2000 advanced by +0.31%, and the NASDAQ Composite Index traded up by +0.48%.  Bonds sold off and 10-year treasury yields climbed by +3 basis points to 1.94%.

 

WHAT’S NXT

 

– The bond market is closed today for Veteran’s Day.

– Boston Fed President Eric Rosengren will speak today.

–  This week’s economic numbers include Consumer and Producer Price Indexes, Retail Sales, Industrial Productions, and The Empire Manufacturing Index.  Earnings season is winding down this week with only 14 S&P500 companies announcing.  Please refer to the attached economic and earnings calendars for details.

 

 

Flying South

 

I will be in our Boca Raton and Miami offices later this week for customer meetings and would love to meet you.  Please reach out and set something up.

daily chartbook 2019-11-11