Remarkable Week
It was a remarkable week that saw investors fret over the notion Jay Powell & Co might not cut rates, just because. I think there is a serious movement to usurp the power of the Fed and put it in the hands of the Executive Branch or Congress to control their vaunted money printing machine. I’m cool with rate hikes based on the economy, but not the out-loud-guessing Powell espoused last year, which sent the market into a tailspin.
I’ve become more intrigued with the notion the Fed not only doesn’t have to trigger recessions as they have in the past, but it should work to help the country avoid them. Certainly, while economic data is coming in at levels given up on by the mavens years ago, there is more room for growth. Why can’t wages grow at four percent a year?
China Trade Deal
Everyone has gotten comfortable with the notion a US-China trade deal was done and just a matter of cleaning up a few details. I was in that camp as well, and still think a deal happens, which is why I applaud the tweets from President Trump on Sunday.
Not only was China dragging its feet and beginning to ask to alter things tentatively agreed upon, I think they were emboldened by comments from former Vice President Joe Biden who expressed little concern about China being a threat to America.
Tweets
Donald J. Trump
?....of additional goods sent to us by China remain untaxed, but will be shortly, at a rate of 25%. The Tariffs paid to the USA have had little impact on product cost, mostly borne by China. The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!
Donald J. Trump
?For 10 months, China has been paying Tariffs to the USA of 25% on 50 Billion Dollars of High Tech, and 10% on 200 Billion Dollars of other goods. These payments are partially responsible for our great economic results. The 10% will go up to 25% on Friday. 325 Billion Dollars....
Is Big Business Really Looking Out for Consumers?
Big business and Wall Street screaming about these tweets are once again showing they care more about business bottom lines than American jobs and know-how. Sure, they mask this by saying they are looking out for consumers, but the fact of the matter is, there is no business that will not have to eat the lion share of higher costs.
Moreover, unfair trade and theft of intellectual property shouldn’t take a back seat to corporate profits. This is why capitalism is losing in the hearts and mind of the general public. They should be happy to put skin in the game and not become allies of China leadership that has openly violated rules and expressed determination to rule the world by hook or by crook.
According to the Economic Policy Institute, a left-leaning think tank that does good work (I often have different opinion on the conclusion of their work) or financial relationship with China is anything but fair or free trading.
“The China toll deepens”
Growth in the bilateral trade deficit between 2001 and 2017 cost 3.4 million U.S. jobs, with losses in every state and congressional district
If Americans knew and agreed the current makeup of our trade relationship with China cost jobs in every single congressional district, I suspect there would be great support for tough action.
Conclusion
I still believe a trade deal gets done. The stakes are too high for both countries, but more so for China, which could reach its goals; albeit, with a longer time line, without its economy being completely derailed. That said, China must be weighing holding out until the presidential election, as it did through the midterms hoping a change in the White House keeps the status quo.
Certainly, hearing democratic front runner Joe Biden say China is no threat must have elicited cheers throughout Beijing.
Positioning
We sent alerts suggesting subscribers take profits on five positions last week, the most in any single week in years, because we expect the rally to become more selective. So, everyone should have a fair amount of cash to take advantage of this huge selloff at the start of trading.
I think a big market dip on non-financial news is a gift for investors. If you are not a current subscriber to Hotline service, click here to get started.
Communication Services | Consumer Discretionary | Consumer Staples |
1 | 4 | 1 |
Energy | Financials | Healthcare |
1 | 1 | 1 |
Industrial | Materials | Real Estate |
2 | 3 | 0 |
Technology | Utilities | Cash |
2 | 0 | 4 |
Today’s Session
To put today’s equity losses in perspective, and get a feeling for who is winning and losing and why, the Trump administration believes it has the upper hand.
In the United States, the S&P 500 and NASDAQ finished last week at an all-time high.
Year to Date
- S&P 500 +16.4%
- Dow Jones Industrial Average +12.8%
- NASDAQ Composite +21.1%
- Russell 2000 +17.4%
This has been a strong year for China’s main stock markets, but it’s been tough sledding since 2015.
Overnight, the Shanghai Stock Exchange lost 5.6%, but it is still up 16.5% for 2019. The Shenzhen Exchange is off 7.5%, but it is still up for the year. Both indices peaked on April 19, up more than 32% for the year.
Shenzhen is home to many Chinese technology companies, and it is seen with pride from all factions, including Xi Jingling, whose father worked on reforms to transform Guangdong into a first-class province with Shenzhen as its centerpiece.
Shenzhen Stock Exchange
As of now, China still plans to send its senior trade delegation to the United States this week, and the government has worked hard to limit viewing of Trump’s tweets in the country. It’s harder to hide or mask the damage in the stock market, however. Some believe the ultimatum from Trump makes it harder for Xi to save face. By the same token, a plunging stock market could be a much larger and more expensive embarrassment.
Technical Support
On closing basis, the key support point is 26,078 for the Dow Jones Industrial Average. Keep that in mind, as we are all tempted to buy this dip.