China Returns Fire
Global markets are retreating once again today as investors attempt to digest the latest round of trade war headlines.
Asian and European stocks are lower across the board as China appears to dig in for an extended trade fight.
“Trade talks can only continue when the U.S. adjusts its ‘wrong actions,’ Gao Feng, spokesperson for China’s Ministry of Commerce, reportedly said Thursday in a briefing,” MarketWatch reports. “He added that the U.S. crackdown on China companies is threatening the ‘global industrial and supply chain.’”
Once again, the trade talk is circling back to tech. Earlier this week, we discussed how Alphabet Inc. (NASDAQ:GOOGL) was getting more than its fair share of negative attention after halting some services to Huawei smartphones in an effort to comply with Trump’s executive order to ban telecom equipment from foreign adversaries.
Huawei is now working on plans to move on from form Google by developing its own operating system for its smartphones. In fact, Huawei landing on a trade blacklist has “severely damaged the fragile trust between the two countries, forcing China to re-examine the entire bilateral economic relationship to protect itself,” the South China Morning Post reports.
While that sounds ominous, let’s not forget that we’re in a news-driven market right now. One positive trade war headline might be all it takes to spark a quick rally. On the other hand, additional negative developments could continue to put pressure on the averages.
Nothing would surprise me right now. We simply must be prepared to act on whatever the market throws our way…
As stocks retreat early this morning, the S&P looks primed to test its May lows near 2,800.
“Just as I expected, the stock market has taken on a more defensive tone,” our income specialist Mike Burnick says. “In fact, utilities, REITs and consumer staples were the three top performing sectors last week.”
Over the past month, U.S. mutual funds and ETFs have experienced net outflows of $34 billion. That’s the most since December 2018, when the last market selloff was ending.
Stocks aren’t as oversold yet as they were last Christmas Eve, Mike notes, but panic selling is in the air.
What happens next?
As it turns out, stocks could soon offer alert traders a strong buying opportunity.
“The S&P 500 is, at best, now in the process of retesting last week’s Monday low at 2,800,” Mike concludes. “At worst, the S&P could break right through that level and head lower still to longer term support at 2,700-2,750.”
“Of course, much depends on economic and trade headlines, especially the latter,” Mike continues. “Stocks may remain turbulent, and stay range bound a while longer, until we get some real progress on a trade deal.”
In the meantime, Mike remains focusing on defensive sectors and high-quality stocks with reliable earnings, such as companies in the health care and consumer staples sectors.