The action in the market on Tuesday was classic summer doldrums. However, there was intrigue and a couple of messages:
- Enticing Would-Be Sellers
When early gains turned into red across all major indices, it was a good test to see how antsy investors have become. People are sitting on huge profits in many areas - watching the midday lull was the perfect excuse to ring the register. Most investors didn’t take the bait.
- Upside Bias
Instead of selling, pockets of buyers emerged periodically, including at the closing bell, pushing all the indices higher.
Between the NYSE and NASDAQ, there were 265 new highs, including Apple (AAPL) and Amazon (AMZN), but other measures of market breadth were decidedly negative. After the close, Hewlett Packard Enterprise (HPE) and new hot weed player, Tilray Pharmaceutical (TLRY) posted financial results, sending shares higher.
S&P 500 Index | +0.03% |
Communication Services (XLC) | -0.44% |
Consumer Discretionary (XLY) | +0.20% |
Consumer Staples (XLP) | -0.33% |
Energy (XLE) | -0.43% |
Financials (XLF) | -0.10% |
Health Care (XLV) | +0.05% |
Industrials (XLI) | -0.21% |
Materials (XLB) | -0.38% |
Real Estate (XLRE) | +1.22% |
Technology (XLK) | +0.17% |
Utilities (XLU) | -0.21% |
China & Free Trade
When the financial elites defend the status quo of current trade deals, they often talk about the magic of money coming back to America in the form of an investment or foreign ownership of American businesses and assets.
There is no question being a magnet for investment is great for the nation as it creates jobs and opportunities. The problem is only 10% of what Americans spend on imports from China and Mexico return to the nation as a foreign direct investment.
You would think China investments would be substantial, but the $58.2 billion puts the country behind at least ten other nations, including Spain.
Moreover, countries we have a trade surplus (goods and services) with include (Canada, Netherlands, and Singapore combined) to provide a foreign direct investment of $713 billion.
Trade & Investment | Exports | Imports | FDI |
United Kingdom | $47.4 | $52.6 | $598.3 |
Canada* | $340.0 | $332.0 | $453.6 |
Japan | $107.9 | $162.8 | $424.3 |
Germany | $47.7 | $114.6 | $372.8 |
France | $32.0 | $45.3 | $267.6 |
Switzerland | $21.7 | $36.0 | $196.6 |
Netherlands* | $42.4 | $17.8 | $191.9 |
Singapore* | $43.0 | $25.0 | $73.7 |
Spain | $11.1 | $15.6 | $67.2 |
China | $185.9 | $478.7 | $58.2 |
Mexico | $276.2 | $339.8 | $34.4 |
*US Trade Surplus
Where Are All Those American Dollars Going?
China has been doling out billions in its ‘Belt and Road’ initiative. Ostensibly, they sought to re-engineer and pave the old Marco Polo route, but it has grown into a plan where eventually all roads will lead to Beijing.
So far, China has poured more than $60 billion into the project but promises many times that amount. The problem is recipients are now saying “no thanks.”
In fact, headlines point to shared epiphanies about China investing.
Malaysian PM Mahathir Mohamad to scrap China-backed $22 billion projects
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The Prime Minister of Malaysia backed away from $22 billion in projects and warned of “a new version of colonialism” in the name of “open free trade.”
Is China’s US$62 billion investment plan fueling resentment in Pakistan?
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There is growing speculation that Pakistan’s new government will walk away from up to $62 billion in Chinese investments that critics are calling “debt trap diplomacy.”
Overnight, China’s President Xi Jinping attempted to tamp down on criticism, saying the goal of the ‘Belt and Road’ was neither military or about creating exclusive circles or a so-called China club.
“Free trade” is a nice term, but “fair trade and investment” is a better reality.
Today’s Session
Markets are opening flat this morning. Alphabet (GOOG) and Amazon (AMZN) received upgrades from Morgan Stanley today. Morgan Stanley raised its target on GOOG to $1515 from $1325 and AMZN to $2500 from $1850. Our price target on AMZN is $2100.
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