Talk is cheap

Talk is cheap.  Stocks slipped yesterday as investors continued to be uneasy about a phase one trade deal.  Presidential musings kept stock bulls at bay for a third straight session.
MY TWO CENTS
1. It takes very little to satisfy.  I have written several times in as many days about the market’s somewhat complacent attitude toward risk.  With very little real data about the progress of trade negotiations, traders are left with media scraps from “people close to the situation” or in some cases, Presidents Trump and Xi.  But the information is not direct and never really commits to anything substantial.  With the Fed having eased and moved into “wait and see” and corporate earnings largely behind us, trade is the single biggest market driver.  It also remains the biggest unknown… and risk.  That said, negative market reaction to negative comments has recently been quite muted while upside moves on positive comments have propelled markets up to new highs.  Just two nights ago, President Trump visited an Apple manufacturing plant in Texas and took the opportunity to make a few comments on the trade deal.  This is what he said (just the juicy stuff): 1. China needs to step it up 2. “I  haven’t wanted to do it” 3. “China would much rather make a trade deal than I would”.  Well that doesn’t sound optimistic does it?  Still, where is the phase one trade deal?   Crickets.  The sides are clearly at loggerheads over a few key issues, amongst them, the US would like China to commit to details of farm purchases and China would like the US to roll back existing tariffs.  Both sides appear reluctant to give in on what are the two primary drivers of the phase one deal.  In the wake of the President’s comments, markets traded off BUT the selloff, of once again, was rather muted given the negative message.  The VIX index closed out yesterdays session at 13.13 which is well below the 15-18 range that many traders use as the demarkation of fear.  These signs continue to paint a picture of complacency and downside risk, especially if the phase one deal goes into the new year without signatures.  WHILE YOU SLEPT President Xi, who rarely addresses the issue directly, said in a speech that China “didn’t initiate the trade war”  and that they “would fight back if necessary”, still he wants a deal based on “equality”.  Seems like there will be a long row to hoe for negotiators.
2. Step it up, lawmakers.  Markets are obsessed with central banks.  They should be, because central bank policy is critical to ensure stability in interest rates, employment, and… investor sentiment.  Like the US Federal Reserve central banks around the world are in control of monetary policy.  They can set key interest rates by policy and even more important, buy and sell securities in the open market.  Buying securities is a way of injecting liquidity into the money supply, which is a monetary easing tool.  QE, or quantitative easing, is one of these tools.  Sure, they serve as a means for the banks to increase the money supply, but the buying also supports the markets.  OK, OK, by now we all know about the very-active Fed, who almost single handedly pulled us out of the financial crisis with everlasting zero interest rates and QE.  That same Fed is blamed for the markets’ sharp pullback late in 2018 as they tightened monetary policy with a series of rate hikes.  Still that same Fed rescued markets by once again going into an easing cycle.  Clearly monetary policy is important.  But what about that other economic policy:  fiscal policy.  Fiscal policy is supposed to go hand-in-hand with monetary policy and is controlled by the Executive and Legislative branches of government.  That alone should give you a hint of where I am going with this.  Government spending on public projects, especially during times of tepid economic growth, is a sure shot way to extend economic expansion.  In the US, lawmakers have long spoken about infrastructure improvement but they have yet to budge on making the dream a reality.  In the US, partisan politics have gotten in the way of positive economic legislation.  In the EU, there is plenty of politics as well.  The ECB, or European Central Bank, is responsible for the monetary policy of all the member countries.  Fiscal policies, however are up to the individual countries, all of whom have different socio-economic personalities.  Germany for instance, which has the largest economy in the Union, cannot by law increase government spending beyond a certain percentage of its economic output.  By law, they are forbidden to have a large deficit, except during times of recession.  Germany is on the brink of economic recession and just recently narrowly avoided it.  The ECB for its part, is putting political pressure on Germany and other member states to become more active in fiscal stimulus in order to avoid disaster, preemtively.  In the US, the Fed can’t continue to do it all and the Government will ultimately have to enact stimulative fiscal policy if we want to continue to enjoy economic expansion.  Yesterday, the OECD (The Organization for Economic Cooperation and Development) lowered its world economic growth forecast to a record low for the decade.  The bar for lawmakers to act keeps getting higher.
THE MARKETS
 
Stocks slipped yesterday on continued fears of a phase one trade deal delay.  The S&P500 slipped by -0.16%, the Dow Jones Industrial Average dropped by -0.20%, the Russell 2000 sold off by -0.48%, and the NASDAQ Composite Index traded off by -0.24%.  Bonds also sold off yesterday and the 10-year treasury yields climbed by +3 basis points to 1.77%.
 
WHAT’S NXT
 
– Markit Manufacturing PMI is expected to be at 51.4, up slightly from last month’s 51.3.  Services PMI is expected to be 51.0 compared to last month’s 50.6.
–  The University of Michigan Sentiment is expected to be 95.7, same as the prior reading.
– This morning Foot Locker and JM Smucker beat Wall Street Estimates.
– Next week we will have some more regional Fed Reports, more housing numbers, Consumer Confidence, GDP, Durable Goods Orders, and the PCE Deflator.  Check back on Monday for details.

IMPORTANT DISCLOSURES.

Muriel Siebert & Co., LLC is an affiliated broker/dealer of the public holding company, Siebert Financial Corporation, which also owns Siebert AdvisorNXT, LLC. Siebert AdvisorNXT, LLC is a registered investments advisor (RIA) with the SEC and with state securities regulators. We may only transact business or render personal investment advice in states where we are registered, filed notice or otherwise excluded or exempted from registration requirements. Investment Advisor products are NOT insured by the FDIC, SIPC any federal government agency or Siebert’s parent company or affiliates.

You are being provided this Market Note for general informational purposes only. It is not intended to predict or guarantee the future performance of any security, market sector or the markets generally. This Market Note does not describe our investment services, recommendations or market timing nor does it constitute an offer to sell or any solicitation to buy. All investors are advised to conduct their own independent research before making a purchase decision. This Market Note is to provide general investment education and you are solely responsible for determining whether any investment, security or strategy, or any other product or service, is appropriate for you based on certain investment objectives and financial situation. Do not use the information contained in this email as a basis for investment decisions. You should always consult your investment advisor and tax professional regarding your investment situation before investing. The charts and graphs are obtained from sources believed to be reliable however Siebert AdvisorNXT does not warrant or guarantee the accuracy of the information. Any retransmission, dissemination or other use of this email is prohibited. If you are not the intended recipient, delete the email from your system and contact the sender. This is a market commentary, not research under FINRA Rule 2210 (b)(1)(D)(iii) and FINRA Rule 2210 (c)(7)(C).

© 2021 Siebert AdvisorNXT All rights reserved.