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Call it a wobbly market, pushed one way by impeachment chatter and another by the prospects—however ephemeral so far—for a resolution, even a minor one, of the ongoing U.S.-China trade spat. Last week impeachment won the day in terms of sentiment, and stocks fell. For more on politics, see page 10. Readers of a certain age might remember the children’s toys popular in the 1970s called Weebles, with the marketing line: “Weebles wobble but they don’t fall down.” These figures, shaped like Russian nesting dolls, had rounded bases and would wobble around when pushed but, that’s right, not fall down and bounce right back up. The market action, basically stuck in a wide band for the last 12 months, taking blow after blow, reminds me of that. And while we’re talking about U.S. stocks here, it seems that there’s plenty of political uncertainty in the major Western developed markets. The Brexit mess and constitutional crisis in the U.K. seems no closer to any resolution. That must weigh on stocks even over here. The reality is that market is actually directionless, despite the occasional 1% and 2% daily upticks and downticks. For example, last week it went down a bit, reacting to the increased talk in Congress about a potential impeachment of the President. While that’s bad, it is unlikely to send the market reeling for a sustained time. A conviction in the Senate—highly unlikely—might . But, as my colleague Tom Block points out on page 10, that ain’t gonna happen. Last week was and up and down but mostly down week. The Standard & Poor’s 500 index fell a little more than 1% to 2961.79, with each day reacting to snippets of impeachment news and trade talk. Trade was seemingly pushed aside in terms of market influence, but then late Friday, for example, after ignoring the impeachment talk and spending much of the day higher, the market turned lower after a report out that the White House is weighing limiting investment in China. Bloomberg reported that the U.S. is considering delisting all Chinese companies, and banning U.S. pensions from investing in Chinese stocks. There were no details so take this with a grain of salt. It smacks of a negotiating ploy by the U.S. Back to impeachment. According to CNN, 219 House Democrats — more than half of the 435 members — have publicly stated support for impeachment proceedings. That said, when President Richard Nixon was impeached, the market fell. When President Bill Clinton was impeached, the market continued higher. Frankly, given Vice-President Mike Pence’s personal stability and probity, it might even be a good thing if Trump is impeached and convicted. Just saying. Impeachment is serious but…. I think investors should really wonder how important each of these factors are when the market doesn’t show very big moves one way or another. When the impeachment news gets hot, the market falls—but for one day, followed by a nice up move the next day, which, in turn, doesn’t see any follow through either. In the way of anecdotal evidence, another potential indicator of positive sentiment is the market’s nonchalance when it comes to a spate of initial public offerings of unprofitable companies that, while not failures, haven’t done too well, such as Uber (UBER), Lyft (LYFT), and those that have been pulled or delayed, like We Company (WE) and Endeavor. The IPO pushback by the market suggests to me that investors aren’t swooning for such new “growthy” stocks, aren’t being swayed by hype, and that there isn’t the kind of wild and unbridled enthusiasm seen at past market tops, as in 2000. In such times of indecision one of the better and most trustworthy signals is the Advance/Decline line and that, fortunately for bullish investors, remains supportive. By the way, despite the volatility, we are just a few percentage points below the all time high set last July 26 of nearly 3026. Separately, in the way of U.S. data, August inflation slowed after a pickup in the previous month, thanks to lower energy, food and durable goods prices. Friday, the Commerce Dept. said the personal-consumption-expenditures (PCE) price index rose a seasonally adjusted 0.03% last month from July. It’s just one month of data. While the Fed bemoans the lack of inflation, or at least inflation that meets its 2%, target I’ve always failed to understand how lower inflation is bad for anyone, poor, rich or middle class. So far, the usual scary month of September is not living up to its historical average as the worst month of the year for investors: down 1% and negative 60% of the time. Sure, there has been lots of volatility, but as of Friday’s close, with one trading day left in the month, the S&P 500 index is up a few points. Quote of the Week: From The Wall Street Journal about the We Company (WE) IPO troubles: “Corporate governance has deteriorated in lockstep with the increase in available capital from people who haven’t traditionally been private-company capital sources,” says Adam J. Epstein, an adviser on corporate governance to CEOs and their boards. Investors “have to play nicely to be allowed into these deals.” Looking Questions? Contact Vito J. Racanelli at vito. racanelli@fsinsight. com or 212 293 7137. Or go to

  • US Policy
Sep 27, 2019

Growing Trump Impeachment Chorus Dominates Headlines

Unless you were sitting under a rock somewhere, you know that the potential impeachment of President Donald Trump dominated the news last week, kind of like the New England Patriots and football. That’s likely to continue for a while. Anyway, while the House of Representatives might indeed approve articles of impeachment against him, investors need to focus on the fact that there remains little support among Senate Republicans to convict him. For those of you who don’t remember your high school civics class, the effect of impeachment alone is limited. An impeachment is equivalent to an indictment in criminal law, and only the statement of charges against an official. While a House vote to impeach only requires a majority, which the Democrats have, a conviction in the Senate requires a 2/3rds majority, which the Democrats don’t. It’s far out of reach today. As noted in the piece by my colleague Tom Lee on page 3, investors need to look more deeply into situations the market is evaluating. And ironically, impeachment may actually help the President next year, as the political conversation ahead of 2020 Federal elections moves from issues such as health insurance, prescription drugs, and climate change to talks between two leaders and whether or not the President may have violated campaign finance rules during the conversation. Remember, the Democrats captured control of the House because of the issues that impact voters, not campaign finance issues. More fallout from this also hits former Vice President Joseph Biden, who’s been hurt by the talks of the role he played with respect to his son’s activities both in Ukraine and China. The talk of Biden in this negative light could help Senator Elizabeth Warren as she continues to climb in the early polls. And here’s another thing: President Trump has shown he is street brawler who will fight hard to be re-elected. Trade took second place last week in the market’s sights. For more on this see page 1. China and the U.S. have announced a new round of trade talks in Washington, D.C. to occur October 10-11. The Chinese seemingly have shown goodwill by permitting the purchase of soybeans and pork from the U.S. ahead of the talks. While a big comprehensive deal isn’t in the cards, a smaller agreement could be reached in the coming months. An agreement would likely have Chinese agricultural purchases and the US permitting export licenses to be given to American companies that supply Huawei. The Congress avoided a federal government shutdown next week by approving a Continuing Resolution postponing spending decisions to Nov. 19. Kick the can down the road. Figure: Top Trump Tweets The President of Ukraine said that he was NOT pressured by me to do anything wrong. Can’t have better testimony than that! As V.P., Biden had his son, on the other hand, take out millions of dollars by strong arming the Ukrainian President. Also looted millions from China. Bad!— Donald J. Trump (@realDonaldTrump) September 26, 2019 Sounding more and more like the so-called Whistleblower isn’t a Whistleblower at all. In addition, all second hand information that proved to be so inaccurate that there may not have even been somebody else, a leaker or spy, feeding it to him or her? A partisan operative?— Donald J. Trump (@realDonaldTrump) September 27, 2019

On Wall Tweet It's Trade Talks On, No Off, No On, No Off...

I looked at the newspaper headlines this week and this is what I saw: -Monday: Stocks Rise as Trump Says China Wants a Deal -Tuesday: Stocks Slip as Investors Wary of Trade Talks -Thursday: Stocks Climb on Hopes for Trade Talks Notice a trend here? When I was a journalist, the saying was three’s a trend. I guess then that markets are concerned about the trade and tariff war that President Donald Trump has waged. Duh. How can investors be anything but frustrated with such goings on. Admittedly, this was the last week of the summer, with few market participants around. Therefore, whatever signal you might derive from this kind of trading isn’t of much value anyway. But things are different under this president. The fact that Trump is tweeting a second by second play by play on the trade negotiations has undoubtedly added to the volatility that we’ve seen this year, and since May in particular, despite the all-time highs hit. Moreover, he is given to, let’s say, exaggeration. In any event, the Standard & Poor’s 500 index finished around 2926, up 2.6% to be exact, marking the first positive week in a month. For the year, stocks are up a robust 17% or so. I think as we head into the last third of 2019, seasonally the most dangerous, the market is poised to improve. As we’ve noted before in these pages, there’s a lot of gloom and doom but not much substance to the worries. As veteran technical analyst Frank Gretz of Wellington Shields notes, another way to think about the market’s trading range is that it’s been inundated with worries about trade wars, a looming recession, inverted yield curve, negative yields around the world and Brexit—it’s surprising the market hasn’t given it up. “This failure to fail…doesn’t mean the market has to go up, but it often does.” It’s a resilient market. How gloomy are things? Kent Engelke, the chief economic strategist at Capitol Securities, recounts a recent CNBC headline last week: A Countdown to Recession. It’s a well-known axion that every forecasted recession has not occurred, he says. (For more on the cheering for bad news, see my colleague Tom Lee’s trenchant account on page 3.) How about we look at something more rational, like the final data for the second quarter earnings results from FactSet. For Q2 2019 (with 90% of the companies in the S&P 500 reporting actual results), the blended earnings decline for the S&P 500 is -0.7%. If that’s the actual drop, it will mark the first time the index has reported two straight quarters of year-over-year declines in earnings since first two quarters of 2016, during the famous China slow growth scare. Comes now the infamous “earnings recession.” Oy, more gloom. Back on the subject of trade tariffs, FactSet says 28% of 438 Q2 conference calls cited the term “tariff” during the call, “well above” the number discussing tariffs at the same point in time in the first quarter, 21%, but well below the year ago number of 38%. It appears concerns about tariffs may be back on the rise for S&P 500. Well, yeah. Consumers are still happy. Personal-consumption expenditures, which drives about two thirds of total demand, increased a seasonally adjusted 0.6% in July from June, the Commerce Department said Friday. Why might this be? A report Friday from Bespoke Investment Group notes that over the past five years 63.2% of the overall increase in national income has gone to wages & salaries, the highest incremental share since Q1 of 1971. Unfortunately, benefits like health care and pensions haven’t delivered the same kind of performance. Here’s a good example of how gloomy data can be misconstrued: early last week the Recreation Vehicle Industry Association reported July RV shipments fell 23.2% YoY, the 12th consecutive month of lower shipments. Unsurprisingly, that led to headlines warning of a recession. But Friday’s Q2 GDP release turned the interpretation of this RV data on its head. The (admittedly broader) recreational goods and vehicles portion of GDP grew 17.2% quarter on quarter. Bespoke noted that shipments are completed production by factories, while spending is consumer purchases at dealers. Hmmm. The Labor Day holiday and the summer will soon be over. The real trading begins now. Quote of the Week: From the WSJ: Price-tracking firm GasBuddy predicts the national average for a regular gallon of gas will be $2.55 a gallon on Labor Day, down nearly 30 cents from last year and the lowest price on the holiday since 2016. The national average has fallen for six straight weeks to $2.58. “Oh, Lord, people love these prices,” said Susan Begnell, a cashier at the Murphy USA gas station on Interstate 20 in Meridian, Miss. At $1.89 a gallon, her station currently is among the cheapest in the nation. Looking Questions? Contact Vito J. Racanelli at vito. racanelli@fsinsight. com or 212 293 7137. Or go to

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