Second-Half Concerns Build – August 17, 2018

Second-Half Concerns Build – August 17, 2018

Here’s the news of the week – and how we see it here at McAlvany Wealth Management:

Second-Half Concerns Build

Turkey doubled tariffs on US imports (to 120% on cars, 140% on alcohol, and 60% on tobacco) early Monday morning, but the news that counted was elsewhere. Stocks spent the rest of the week in rally mode when the Trump administration announced it was reestablishing trade talks with China later this month. That development, along with a 40% uptick in Walmart’s e-commerce revenues and Boeing’s success at beat the number, had the Dow up nearly 400 points on Thursday. There was plenty of bad news among corporate forecasts from the likes of Nvidia, Tesla, JD.com, Applied Materials, and Macy’s that punished those companies’ shares, but stocks continued to feed on the positive momentum all week long. The mood remained upbeat at the close even though the NASDAQ couldn’t erase all of its earlier losses caused by weakness in the chip sector.

Other bad news that failed to gain traction came from the economic data. So far, there has been no rebound from some of the June data that folks ignored or called a fluke. This is important because the Fed in its infinite wisdom still wants to raise rates two additional times this year – predicated on the belief that the economy is every day, in every way, getting better and better. The facts beg to differ. Import prices fell 0.1%, export prices fell 0.5%, the Philly Fed Business Index collapsed to 11.9 from 25.7 (the lowest in two years), Housing Starts were up only 0.9% (7.4% was expected), Industrial Production rose 0.1% (against 0.3% expected), US Building permits were basically flat, and the Home Builders index dropped out of its bullish trend to 67 – a nearly two-year low. Preliminary data for August has been mixed, with the Leading Index at 0.6% – not unhealthy – while the Michigan Consumer Sentiment indicator slipped to 95.3 from 97.9 on a 5.7% drop in the category of “current conditions.”

With nearly 95% of companies having reported for the second quarter, we should start to see the focus shift away from earnings to the general economy and rates. I haven’t put much emphasis on trade issues for the simple reason that the market hasn’t. This may be because there are several countries that are more than willing to fill the gap left by those Trump has targeted. In any case, the metals have yet to react positively to the tariff tiff. Gold dropped below 1,200 in sympathy with platinum (affected by auto tariffs) and against subsequent strength in the dollar. That said, I suspect we have seen the worst of this. Either world production will adjust or trade talks will reach an amicable accord, or both. Next week, we’ll have news on the Jackson Hole symposium, the FOMC minutes, and discussions on Greece’s third bailout.

Best Regards,

David Burgess
VP Investment Management
MWM LLC

2018-10-30T12:32:59+00:00

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