All quiet on the Eastern front

All quiet on the Eastern front.  Stocks rose yesterday as trade talks between US and China kicked off in Washington.  Positive tweets and good body language have investors feeling like this might be the one.

 

MY TWO CENTS

 

  1.  Great expectations.  In case you haven’t noticed, there is a lot of built up tension in the markets.  Investors who once relied on the occasional call from their brokers were largely immune from the daily gyrations or the markets, the global economy, and the financial news.  Today things are quite different.  The main stream media now regularly features small financial news vignettes or at least a stock index ticker on the bottom left hand of the screen flashing red and green arrows throughout the day.  The word recessionis kicked around with ease.  The Chairman of the Federal Reserve, once a nerdy economist whose musings only appeared deep in the financial press, is now like a rock star who can move global markets with a mere facial expression.  When I am under cover (not wearing my signature bowtie) I am often lectured by everyday folks about the stock market and interest rates.  In the winter of 1929, as the famous Wall Street anecdote goes, Joe Kennedy, a famous businessman, stopped to have his shoes shined on the way to his office.  The shoeshine boy offered Kennedy a tip.  He told him to buy Hindenburg stock, as it was a fine company.  Kennedy promptly went to his office and sold all of his stock quipping that “you know it’s time to sell when shoeshine boys give you stock tips.  The bull market is over”.  People SHOULD be aware of what is going on in the economy in order to manage their personal finances.  The challenge becomes when there is an overload of information and no easy way to sift through it all and get the important message.  It begs the question, what if these everyday folks get spooked and decide to sell stocks?  What would it mean for the long term prospects of investors?  Well, first of all, only around 52% of households actually own stocks with the wealthiest 1% of households making up 50% of that number, many of whom have access to financial professionals to help them sort out their finances. Direct impact therefore, is not as much a factor as one might think. HOWEVER, people make important purchase decisions every day.  Whether or not to buy a new car, renovate their homes, or even how much to spend on groceries.  These purchases make up the bulk of the economy.  Know where this is going yet???  Frightened consumers, in response to the ever growing negative news cycle can directly impact the economy, even push it into recession, which can impact the stock market.  Knowing the facts is important.  Filtering out the noise is critical for long term financial success.

 

  1.  Next stop.  Trade talks between the US and China are reaching a crescendo… once again.  This time, the stakes are high.  The Chinese economy continues to slow down despite aggressive efforts by its central bank.  In the US, more and more businesses are complaining about the impacts of the trade war.  The President is under an increasing amount of political scrutiny and there are some signs that consumers are getting nervous.  A win at this point would benefit both sides.  Reports have been circulating that China would be willing to accept a partial trade deal and they have ramped up their purchases of US soybeans.  The US has reportedly given licenses to some US companies to sell to Huawei.  Both sides seem poised to work out some sort of deal.  As I said yesterday, even a limited deal would be healthy for not only stocks, but also everyday consumers who are starting to pay attention to financial news (see my point above).  Yesterday President Trump announced that he will meet with Vice Premier Liu He today.  The news helped push equities up in yesterday’s session and the buying continued overnight in the futures markets.  The two are scheduled to meet this afternoon and hopes are high.  Hopefully they too have been watching the financial news.

 

THE MARKETS

 

Stocks traded higher yesterday on high hopes that a trade deal might actually happen this time around and the Fed continues to offer verbal support.  The S&P500 advanced by +0.64%, the Dow Jones Industrial Average climbed by +0.57%, the Russell 2000 traded up by +0.40%, and the NASDAQ Composite Index progressed by +0.60%.  Bonds slipped for another session and 10-year treasury yields climbed by +8 basis points to 1.66.  Crude oil climbed as much as 1.6% overnight, WHILE YOU SLEPT, on reports that an Iranian oil tanker was struck by rockets in the gulf.

 

WHAT’S NXT

 

– University of Michigan Sentiment will be released and is expected to be at 92.0, down from last month’s 93.2.

– Minneapolis Fed President Neel Kashkari, Boston Fed President Eric Rosengren, and Dallas Fed Boss Robert Kaplan will all speak today.

– Next week, we will get some regional Fed reports, Retail Sales, some housing numbers, The Leading Index, and the Federal Reserve Beige Book.  Earnings season will officially begin next week with the financial stocks along with many others.

 

Have a great weekend!

daily chartbook 2019-10-11

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