Demagogues, Trade Wars and Deeper Fundamentals
Dear Rundown Reader,
Markets were up again yesterday.
Pre-market this morning Dow futures are up 240 points and Nasdaq Futures are up 46 points.
Oddly enough it wasn’t the big banks, who reported strong earnings, leading the way for stocks.
Last Friday we reported that Wall Street analysts expected big banking to shine post earnings.
But by the market’s close on Monday, JPMorgan, Citigroup, PNC, and Bank of America were all down 4% or more from last week’s highs.
As the bull nears the later stages of its run, it seems that Wall Street is looking at even deeper fundamentals than revenue, expenses and price to earnings ratios.
Could this be the case?
Or is the Street being overly defensive and not giving enough credence to a growing economy, strong employment and wage growth?
Your Rundown for Tuesday, April 17, 2018…
Deeper Fundamentals Driving Market Action
Stocks as a whole are up for the second day in a row and it appears that the correction we endured over the last two months may be over.
Adding to the positive momentum are strong Q1 earnings reports.
Despite strong earnings so far, many companies that reported took losses the next day.
The return to basic fundamentals appears to be muted in light of deeper analytics, and continued uncertainty in the geopolitical landscape.
As a result, the bull’s are playing defense, with many questioning if Wall Street’s expectations are still too optimistic.
According to Bloomberg: “Among 29 members of the S&P 500 that announced earnings through Friday, even those that beat analyst estimates saw shares trail in first-day reactions”
The muted action comes as a surprise to many. But a deeper look at the mix of political narrative and market data reveals telling truths.
According to Jim Paulsen, chief investment strategist at Leuthold Group, “the market is set up for lousy returns with valuations as stretched (as they are),” as reported in Bloomberg.
Other concerns include anticipated rises in labor costs as the labor market approaches saturation.
And of course folks are still worried about the impact trade wars and political posturing over Syria will have on markets moving forward.
Speaking to the South China Morning Post, renowned economist Joseph Stiglitz called President Trump “a ‘demagogue’ whose China tariffs are punishing ordinary US citizens.”
Strong talk that makes for a good headline, but is it fair?
Maybe a little of column “A” and “B”.
No, because as many experts note, the costs associated with tariffs would be a lot more spread out than most think.
China may take less of our goods, but other markets will pick up the slack, including those right here in the U.S., offsetting the impact of tariffs.
Yes, because tariffs still hurt business.
A Politico report notes, “Chinese tariffs against U.S. commodities could hurt more than U.S. tariffs against Chinese goods: Our pork and soybeans are basically all-American, whereas a goodly portion of Chinese imports have parts from countries around the world sourced by American companies domiciled in the U.S..”
Which means if things escalate to an all out trade war we will have a tough time winning against China.
Hopefully it doesn’t come to that.
The bulls playing defense right now seem to have the right idea. Remain bullish, but prepare for the worst.
A defensive strategy makes a lot of sense given what we’re seeing in the markets.
After all, defense does win championships. And slow and steady growth is a good thing.
We got so used to banking explosive gains last year that we forgot that fact.
It’s time to reset our perspective and trade accordingly.
Now, turning to the markets this morning…
Market Rundown for Tues. April 17,
S&P 500 futures are up 13.25 at 2,695.
Oil’s flat at $66.26.
Gold’s down $5.20 to $1,345.
Bitcoin goes for $8,126 this morning, according to CoinDesk.
After a few days of sideways action Bitcoin may be testing a new support level. The rest of the week’s price action will be telling.
Will those who recouped losses over the past few days finally bail or buckle down for more?
Send your feedback and questions to TheRundownFeedback@SevenFigurePublishing.com.
We’ll talk again on Wednesday.
For the Rundown,