Eq: Total Market
(New York)
Markets have indigestion this week, but is a recession any more of a threat than it was a couple weeks ago? The answer is yes. So far the manufacturing side of the economy has been the weaker one, with the consumer side staying strong. However, all the tariffs that have been imposed on China will now hit the side of the US economy that is strongest—the consumer—by raising prices at the register. Therefore, the trade war will directly weaken the best part of the economy, which could seriously curtail growth.
FINSUM: To protect against this, investors may want think about shifting into defensive shares like consumer staples, healthcare, utilities, and real estate, all of which tend to outperform cyclicals in a down economy/market.
(New York)
Markets took a nosedive yesterday. Last week was bad, but yesterday’s falls were so steep they amounted to about as much as all of last week. All fears over rates and the trade war came to a head when Trump labeled China a currency manipulator. The S&P 500 fell about 3%, meaning the total decline in the index since last week is around 6%. The Dow lost 760 points. The losses amounted to the worst single day drop since early 2018.
FINSUM: The “currency manipulator” claim is largely symbolic. While it certainly won’t help a deal get done, it is hard to see it having a tangible outcome. This seems like a lot of pent-up market anxiety manifesting itself.
(New York)
The market is in the worst shape it has been for some time, maybe the worst condition of the year. The S&P 500 fell over 3% last week on the combined news of a less dovish Fed and a huge tariff increase on China. Where things go from here is very uncertain, but JP Morgan is arguing that you should buy the dip. The bank’s strategists summarize their view this way, saying “Our core view remains that one should use the prospective weakness as an opportunity to add further, similar to the May experience. We continue to believe that global equities will advance further before the next U.S. recession strikes. We think that the growth-policy trade-off is far better now than it was in 2018”.
FINSUM: The market, economy, and politics are at quite a confusing point right now. Either things will gel to send prices higher, or it will all come crashing down like it did last year. Anyone’s guess.
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(New York)
The market is going through a fit, and it is entirely self-induced. Firstly, the Fed hit markets with an unexpected lack of dovishness earlier this week. Then, just a day after, President Trump did what many feared he would—he announced another large round of tariff hikes on $300 bn of Chinese goods. Many suspect the move is part of an effort to push the Fed into cutting rates after it downgraded its language to calling the trade war merely a “simmer”. Markets fell sharply on the news.
FINSUM: Trump is trying to push both China and the Fed. It will likely work with the former, as they don’t have much of a choice if the economy looks vulnerable, but this is certainly not going to help China get back to the table.
(New York)
While headline economic numbers for the US economy have been good, there are some signs on the margins that things may not all be well. For instance, new data out of the shipping and trucking industry looks poor. The whole US trucking industry is in bad shape because of excess inventory and soft demand. “We’re three months into a freight recession”, says a transport analyst. Relative to last year at this time, there is less demand for capacity and that, coupled with an oversupply of trucks, means there’s little to no spot freight and all truckload prices have come down dramatically”, says the CEO of a freight broker. “Freight as we measure it is growing at less than 1% in 2019”, says the owner of an industry data provider.
FINSUM: So part of this is excess inventory, but another important factor is waning demand for freight, which is a leading indicator of an economic slowdown.
(New York)
We are back in the weird world of the 2013-2016 era. Remember the time when weak/moderate economic news was great for stock prices? Welcome back. Investors are hoping that economic data trends flat or just a tiny bit weak, which would cause the Fed to loosen policy. However, if the economy does well, that would lead to tighter monetary conditions, which investors don’t favor. Therefore, right now, bad economic news is good for the market, and vice versa.
FINSUM: We have always found these kind of “goldilocks” scenarios rather perverse, but they are the reality nonetheless.