Weekly market update
Stock market gains were capped last week by persistent uncertainty over the U.S.-China trade deal but all of the major averages finished in positive territory. A mixed bag of earnings contributed to the U.S. stocks’ holding pattern; yet, at record highs. But the whole story is trade talks and we are getting a lot of talking.
It’s become like Chinese water torture with the tweets and headlines:
- Lack of “optimism” on the trade front.
- S.-China trade talks hit snag over farm purchases.
- Stocks slump on reports that US/China “Struggling” to finalize phase one of a deal.
- Market drops on trade uncertainty.
- Stocks rally on renewed trade optimism.
- China says holding ‘in-depth’ talks with the U.S. on an interim trade deal.
- S&P500 soars above 3,100 on trade deal optimism.
- China considers putting on hold trade talks due to U.S. Bill in Hong Kong.
- The mood in Beijing about a trade deal is pessimistic.
I think, no I know, we are all getting pretty tired of it and while it’s tempting to trade each headline, investors who tune out noise have been consistently rewarded. Diversification and a long-time horizon act like Dramamine when the tranquil seas start to turn choppy.
For us sane individuals, we’ll just keep chugging along taking the data as it comes in and reevaluating the circumstances as we move forward. What’s wrong with that? When it’s better to sell stocks than buy them, we’ll sell. When the risk vs reward is better from the long side, we’ll be buyers. And in some cases, a more neutral approach will be best.
And then you have the permabears who are calling for a recession and stocks are overbought, but are we overbought? For me, overbought conditions are a characteristic of an uptrend in stocks. We should be overbought and we should expect it. If stocks did NOT get overbought, that’s where the problem would be.
Turning to the economy, Federal Reserve Chairman Jerome Powell told Congress on Wednesday that interest rates are on hold absent a material deterioration of the economy. He said, “We see the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook of moderate economic growth, a strong labor market and inflation near our symmetric 2% objective.” He went on to say, “Of course, if developments emerge that cause a material reassessment of our outlook, we would respond accordingly. Monetary policy is not on a preset course.”
U.S. economic data this past week showcased the contrasting feature of the U.S. economy: a resilient U.S. consumer but a struggling manufacturing sector. The core headline read on the latest retail sales figures came in better than expected, but when you strip out autos and gas, they were slightly below expectations.
Inflation measures of the PPI and CPI have been a little hotter lately and jobless claims of 225,000 were above expectations—one week isn’t a trend, but it might be something to keep an eye on. Claims can sometimes be the “tip of the iceberg” for economic health.
Across the ponds, things weren’t so bright, but they could be worse. China’s factory output growth slowed more than expected in October, Japan’s economy ground to a standstill in the third quarter and the German economy only narrowly avoided a recession in the third quarter.
We will get quarterly earnings from a number of big retailers, so that is something we’ll be watching. We will get the latest minutes from the FED’s October meeting. We also will get the latest read on consumer sentiment, housing starts and existing home sales, so stay tuned and we’ll keep you posted.
Todd Day, MBA
Portfolio Manager
Horizon Financial Services, LLC
