Weekly market update
Stocks around the globe advanced last week following productive high-level trade talks between the U.S. and Chinese officials and that included the flexibility on the March 1st deadline that President Trump had set to increase tariffs. Stocks just keep going and going; the Dow and NASDAQ have risen for nine straight weeks and the S&P 500 has risen eight of the last nine—that’ll stop the bleeding suffered in December.
But I’ll have to admit, all of the jawboning about tensions rise and tensions ease—these U.S./China trade talks making Brexit negotiators look like they know what they are doing. I think the market has finally grown tired of all the talk and wants action on trade. Enough jawboning. Either do something or let us deal with the fallout. Period. Here is a perfect example of that jawboning— “U.S. stocks retreated from the highest levels of Friday as headlines from wire services of President Donald Trump’s Oval Office comments suggest doubt on progress on U.S.-China trade talks. In a letter written by Xi Jinping and read out by Trump, the Chinese leader said he hopes the two sides “redouble efforts to meet halfway.” Trump meanwhile said perhaps he and Xi will work out the final points or perhaps not. U.S. Trade Representative Robert Lighthizer said a few “very big” hurdles remain. The Chinese delegation will stay two additional days.”
Over the weekend, President Trump announced that he would delay any additional tariffs as talk progress and stocks were off to the races. Is this the only game in town? Apparently, it is.
In stock news, Caterpillar and Xerox shares fell on Friday after a report that the European Union is ready to target companies if the U.S. places tariffs on European cars imported into the U.S. Looks like the trade war with the EU is heating up, imagine the rallies we’ll see on positive headlines from that one.
Also, Kraft Heinz—oh boy! The stock tanked following poor earnings report, they wrote down two iconic brands, slashed their dividend and disclosed an SEC subpoena. The stock was down 7.5 years’ worth of dividends in one morning—YIKES!!
On the economic front, Home sales, Capital expenditure orders, the Philly FED report, the Conference Board Leading indicator (LEI), trade numbers out of Korea, Japan and Thailand, we are seeing incredibly weak data. It looks like the one thing we have going, economically, is the strong jobs/labor market.
I have been watching a number of technical indicators and they have reached well into overbought territory, but there are some things that continue to make us bullish:
- A weakening U.S. Dollar has been and will be a positive catalyst for stocks, especially emerging markets.
- Freeport-McMoRan (FCX) is a good example of the types of stocks benefiting from the Dollar Weakness, on both a relative and absolute basis.
- London FTSE100 stock market is breaking out of a multi-decade base makes it hard to be bearish stocks from any sort of intermediate-term perspective. I’m still somewhat skeptical of international stocks, but I am still watching them.
- Our “Dow Fab 5” is breaking out to All-time highs—Boeing, UnitedHealth, 3M, McDonald’s and Home Depot.
- Crude Oil is beginning its next leg higher, which makes sense with stock prices rising as well. I mentioned those rising gas prices last week.
But according to Bank of America Merrill Lynch, in the last week, there have been $4.6 Billion of cash flows into bond funds and $12.7 Billion of outflows from stock funds—smart money or dumb money, you make the call…
This week—we will have FED Chair Jerome Powell on Capitol Hill Tuesday and Wednesday, so this will be something to keep an eye on. Will he maintain the patient stance towards rate hikes and balance sheet or will he flip flop again?
We will also be monitoring the trade talks but as of this writing, there are no more scheduled talks on the calendar; so, the FED may be the only game in town—we’ll see.
Stay tuned and we’ll keep you posted.
Todd Day, MBA
Portfolio Manager
Horizon Financial Services, LLC
February 25, 2019
