Finally, A Trade War Rally!
China and the United States are meeting for trade talks, sparking a major market rally that finally broke the averages out of their collective funk.
Will the two countries kiss and make up? It’s unlikely. But one thing’s for sure: we are all sick and tired of this trade war.
“Escalating U.S.-China trade tensions have been the biggest equity headwind for months, so a relief rally on news high-level trade talks are planned for early October is no surprise,” said Alec Young, managing director of global markets research at FTSE Russell, via Bloomberg. “The bottom line is that stocks need earnings growth to move forward, and you can’t get that without progress on U.S.-China trade.”
The Chinese Ministry of Commerce confirmed the talks will happen sometime in October. Chinese media sources are generally optimistic about the outcome of the talks, according to CNBC. The Dow Jones Industrial Averages was equally enthused, jumping more than 370 points Thursday. A rally of less than 2.5% will place the Dow back at all-time highs.
How badly did the recent volatility spook traders? For an answer, we turn to precious metals…
As stocks ricocheted in a violent range last month, investors turned to precious metals and other safety trades.
I noted in late August how gold and precious metals investments were taking charge as wider price swings afflicted the stock market. In fact, gold flipped the script and began outperforming the S&P 500 on the year as of Aug. 1.
But silver was the real tell.
The poor man’s precious metal finally caught a bid this summer and started to outpace gold — a surefire sign that speculators are finally finding their way back into the precious metals trade.
“Silver is also gaining 4.0% today which is more than twice as much as gold’s 1.3%.” John Murphy noted on his Stockcharts.com blog earlier this week. “That isn’t something new. Although gold led the rush into precious metals during May and June, silver took the lead during July and August.”
Murphy’s chart shows the shift perfectly as silver began to catch a bid back in July:
Source: Stockcharts.com/John Murphy
But yesterday’s breakout has put a lid on the precious metals surge, at least temporarily. Gold retreated more than 2% as the major averages broke out, while silver fell nearly 4%.
As you’ve probably guessed, the metals trade became a little frothy as trade-war gloom clouded market outlooks. Now that stocks are settling back into a bullish groove, the safety-seekers and metals speculators are taking profits. That’s continuing this morning. Gold is off another $13 to drop it near $1,510. Meanwhile, silver is staging an even sharper retreat. It’s down more than 3% this morning to $18.20.
We’ll have to watch to see where buyers step back in after this late-week swoon. Remember, major comeback rallies are typically fraught with violent reversals and shakeouts. Judging by the incredible run we’ve witnessed in the precious metals space this year, the current pullback could continue before finding support.
Finally, let’s check in on the IPO earnings rollercoaster of the week…
Workplace productivity IPO Slack Technologies Inc. (NASDAQ:WORK) just reported earnings for the first time since its June IPO.
The company beat earnings on the top and bottom line. But that wasn’t good enough for investors, who were hoping for stronger growth. Management also forecasts a wider-than-expected loss during the current quarter, per The Wall Street Journal, which added to the selling pressure.
Shares dropped more than 14% on the news, but recovered to close lower by just about 3.5% on the day. Despite the recovery, Slack’s chart isn’t exactly screaming “buy!” at the moment…
Slack’s main rival is Microsoft with its Team application that fills essentially the same role as Slack. Given that Microsoft is one of the oldest players in the game and has actually, you know, made money, some pundits believe Slack will have a battle on its hands for workplace supremacy.
Still, Slack’s main goal right now is growth— and the company is apparently ready to light piles of money on fire to get there. According to CNBC, Slack has a $800 million in cash laying around to get those fires burning.