They’re Here!

They’re here!  Stocks closed moderately higher on Friday finishing off a week of winding down trade tensions.  Despite some undesirable economic data, stocks managed a positive close for the last week in August.

 

MY TWO CENTS

 

1.  Wait for it… wait for it.  Last week featured several ups and downs in the long-running trade saga between the US and China.  The week ended on a positive note as China seemed determined to avoid a ratcheting up of tensions between the two sides.  The Chinese strategy appeared to be to attempt to coerce the US into avoiding or delaying tariffs on $150 billion in Chinese goods set to take effect on Sunday.  Chinese hopes were apparently unsuccessful as Sept. 1st came and went without any word from the Administration.   In other words, the 15% tariffs on mostly consumer items is here.  WHILE YOU SLEPT China said that they would file a complaint against the US at the WTO (World Trade Organization).  Further the two sides are reportedly struggling to organize the September meeting which was one of last weeks positive market stimulants.  In other news, Huawei has accused Washington of launching a cyberwar against the company… and that can’t help.  Huawei is China’s 15th largest company ranked by revenues.  All of the ups and downs in trade this year so far have managed to give investors quite a bit of indigestion.  Despite the discomfort, the S&P 500 still managed to climb +16.74% year to date, though the move is largely attributed to the Federal Reserve’s dovish shift and interest rate cut, despite what you might have read on Twitter.

 

2.  A sentimental journey.  The consumer – one of my top 5 favorite topics – can be credited for keeping the US economy powering forward logging new records for markets and economic metrics.  Even in the face of slow growing wages consumers have been spending.  Despite political uncertainty and under the dark cloud of a trade war between the US and the second largest economy in the world, consumers have been spending.  On Friday, the Bureau of Economic Analysis reported that Personal Income grew by just +0.1% month over month slowing down over the prior month’s growth of +0.5%.  Lest we worry it is my duty to report that Personal Spending over the same period grew by +0.6% speeding up from the +0.3% growth a month earlier.  This all means that consumers are ramping up their spending faster than their salaries are growing.  Seems pretty bullish on the surface.  But wait, these numbers represent the past and offer no real assurance that the habit will continue.  In fact, we may be able to deduce that the slowdown in income growth in July may indicate a slowdown in spending in the month’s ahead.  An even better telltale is Consumer Sentiment in which individuals are polled based on their feelings of the current situation and their views on the next twelve months.  The University of Michigan Sentiment Indicatorwas released on Friday and the metric showed a downward revision to 89.7 from 92.1.  Current conditions fell from 107.4 to 105.3 and expectations for the next twelve months fell from 82.3 to 79.9.  If sentiment is any indicator of future spending, we may be in for a rough Q4 as new tariffs are expected to cause price hikes in some consumer goods.

 

THE MARKETS

 

Markets ended mixed to slightly higher on Friday to close out a volatile month marked by a steady stream of trade tension between the US and China.  The S&P500 climbed by +0.06%, the Dow Jones Industrial Average advanced by +0.16%, the Russell 2000 slipped by -0.13%, and the NASDAQ Composite Index dropped by -0.13%.  Bonds inched up and 10-year treasury yields were unchanged at 1.49% while the 2-year/10-year yield curve remained inverted at -1.39 basis points.

 

WHAT’S NXT

 

– Markit US Manufacturing PMI is expected to come in at 50.0 versus last month’s 49.9.  The ISM Manufacturing PMI is expected to have grown from 51.2 to 51.3 for August.

– Construction Spending is expected to have grown by +0.3% month over month compared to last month’s reported drop of -1.3%.

– Boston Fed President Eric Rosenegren will speak today.

– In the week ahead, we will get the Fed’s  Beige Book, ADP Employment Change, Services PMI, Factory Orders, Durable Goods Orders, and the monthly employment data from the Bureau of labor statistics.  Please refer to the attached economic and earnings release calendars for details.

daily chartbook 2019-09-03

earnings releases 9_03

econ numbers 9_03