The Calm

Tuesday was another sluggish session for the market. It has lapsed into summer doldrums ahead of the highly anticipated earnings season. More clarity is a must on the next move with respect to trade and technology protection.

The Message of the Session

Energy led the way Tuesday as West Texas Intermediate (WTI) surged more than two dollars.

Technology saw a cautious rebound.

Consumer staples were lower, but there were a lot of names in the rumor mill, including Campbell’s (CPB), J.M. Smucker (SJM), and Pinnacle Foods (PF). 

Consumer discretionary names climbed on great earnings from homebuilder Lennar (LEN).

Market breadth dynamics have changed dramatically with big positive ratios of advancers and advancing volume. However, new 52-week highs and lows underscore the risk of being in stocks that disappoint.  

• NYSE: 45 new highs versus 66 new lows
• NASDAQ: 73 new highs versus 59 new lows

Investor Apathy

Recent market pressure is hitting individual investor confidence. Early last week, it swooned more than 6% points.  In fact, according to the American Association of Individual Investors, individual investors have largely been neutral on the market since the Dow peaked in late January.

Buy Signal

A part of the problem for the market is the sideways action that has become a source of frustration and angst.  I suspect all that changes when the S&P 500 closes above 2,787. Until then, investors will remain flummoxed.

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Don’t be lulled into indifference or make the mistake of underestimating a boring market. Earnings season is around the corner, and I think we’ll get to a point where some trade headwinds could become tailwinds.

This is the calm before the big move, which should be higher based on economic fundamentals.

American Technology Secrets: Not for Sale

I wrote about the role of CIFUS in vetting China's investment in yesterday’s commentary.  This morning’s news that the administration is prepared to use a stronger CIFUS process has stopped an early-morning thumping in the markets.

The news is reporting this development based on how they personally feel about President Trump.  It’s not a softening of position, it is clarity.  Moreover, the notion America was going to curb all foreign direct investment was the real reason for Monday’s swoon.  (That was from a wayward tweet from Steven Mnuchin.)

Here’s what I wrote yesterday:

June 26, 2018

The market was slammed on Monday due to reports of the White House’s preparedness to curb investments in certain industries that could benefit the Chinese government’s “Made in China 2025” ambitions. 

While the focus has been on controlling trade in an effort to open China’s market, to stop the shakedown of foreign businesses, and to curb the theft of intellectual property, yesterday’s news had a different angle. 

According to reports, the Trump Administration is considering slowing investments by companies that have 25% or more ownership. Chinese investment into the United States soared into the election of President Trump - from 2000 to the first quarter of 2018, there have been 1,556 deals worth $139.9 billion.

• 1990 to 2015: $64 billion
• 2016: $45.0 billion
• 2017: $29.0 billion

A big part of last year’s China direct investment slowdown was a combination of China’s efforts to slow capital flight, and the Committee on Foreign Investment in the United States’ (CFIUS) actions.

It is unlikely the administration’s potential new rules would have held up many deals accomplished over the past two decades. Late in the session, Peter Navarro spoke and tried to calm the market, which saw the Dow rebound almost 200 points, but the Street was determined to send Trump & Co. a warning.