Market Strategy 8/26/2019
- August 26, 2019
“Why Can’t We Be Friends?”
The words of 1970s band War come to mind as tweets overshadow news from Jackson Hole and the G7 meeting
Key Takeaways
- The week ahead will find investors looking for clues for the markets’ potential for resilience or weakness.
- Last week reaffirmed the power of uncertainties surrounding the trade war to unsettle markets and take stocks lower even as economic data stateside continued to signal resilience.
- A brace of economic data this week will provide investors opportunity to judge the strength of the economy with a second estimate of Q2 GDP, inflation indicators, and consumer sentiment.
- With more than 96% of the S&P 500’s companies having reported, Q2 earnings are up 1.7% on the back of 3.6% revenue growth. Results thus far beat negative consensus expectations at the start of the earning season.
As markets in Asia opened lower today (Monday) and as European and US traders anticipated lower openings in their respective bourses, traders and longer term investors will likely ponder scenarios that might develop in the days and weeks ahead.
From our perch on the Market Strategy Radar Screen, we must express disappointment with the tone of the geopolitical rhetoric at the root of last Friday’s sell-off. That said, we’d have to say that such disruptive occurrences are part and parcel of a dispute (in this case a trade war) in which both sides have such different views about trade and what constitutes abusive behavior in that area compounded by political, economic and fundamental ideologies that are diametrically opposed.
For those with historical perspective on geopolitics and how nasty deliberations and rhetoric can get during periods of negotiations between leaders of countries with opposing ideologies, what came to pass on Friday was likely a setback in a process toward resolution that should have been expected. As such, the markets may have over-reacted on Friday and may have a few more days to act out fearful emotions before cooler heads in the market and perhaps the political realm prevail.
US Secretary of Commerce Wilbur Ross (a key member of the Trump administration in the area of trade) had warned months ago that the complexity of the issues in the trade negotiations between the US and China would likely require more time to arrive at a resolution than most might expect. In hindsight, his comments were perhaps understated and under-reported.
It’s easy to say “the darkest hour comes before the dawn,” but sometimes the darkness of night appears never-ending. For now, investors’ convictions and patience will likely be tried. We have found over the course of our tenure in the markets (over three and a half decades) that it helps to practice the discipline of diversification, have an awareness of one’s goals and objectives, and recognize that wherever risk is present, opportunity often lies close by.
The stakes are high not only for the US and China but also for all their trading partners—essentially the whole world. .
Give and Take
he current dispute between the US and China is not tied to armament reduction (though such talks might lie ahead on another platform). Rather, the dispute concerns trade and trade practices.
In our view, for the US position in its simplest form, the talks are about establishing a fairer regime in trade practices to reduce theft of intellectual property and innovation as well as protect against technological espionage and provide a more level competitive landscape. For China, we believe there’s a very natural reluctance to give up the very favorable handicap to compete that it was given by the US, Europe and non-communist Asia since China opened its doors to an economic solution to challenges it faced long before it was the second-largest economic power in the world.
The ubiquitous nature of technology and globalization has lowered barriers of entry to competition. Quite naturally, this necessitates readdressing the fairness of the playing field on which global trade takes place. The stakes are high not only for the US and China but also for all their trading partners—essentially the whole world.
Our expectations remain that faced with the gross impracticality of extending the trade war and further ramping up hostilities, both sides will recognize the economic cost to humanity and seek more diligently to find resolution sooner than later. In the interim, the respective constituencies of both sides belonging to business interests and consumer citizenries are likely to exert as much pressure as they can summon to get things resolved.
John Stoltzfus
Title:Chief Investment Strategist, Oppenheimer Asset Management Inc.
John is one of the most popular faces around Oppenheimer: our clients have come to rely on his market recaps for timely analysis and a confident viewpoint on the road forward. He frequently lends his expertise to CNBC, Bloomberg, Fox Business, and other notable networks.
Other Disclosures
This report is issued and approved by Oppenheimer & Co. Inc., a member of all Principal Exchanges, and SIPC. This report is distributed by Oppenheimer & Co. Inc., for informational purposes only, to its institutional and retail investor clients. This report does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction where such offer or solicitation would be prohibited. The securities mentioned in this report may not be suitable for all types of investors. This report does not take into account the investment objectives, financial situation or specific needs of any particular client of Oppenheimer & Co. Inc. Recipients should consider this report as only a single factor in making an investment decision and should not rely solely on investment recommendations contained herein, if any, as a substitution for the exercise of independent judgment of the merits and risks of investments. The strategist writing this report is not a person or company with actual, implied or apparent authority to act on behalf of any issuer mentioned in the report. Before making an investment decision with respect to any security discussed in this report, the recipient should consider whether such investment is appropriate given the recipient's particular investment needs, objectives and financial circumstances. We recommend that investors independently evaluate particular investments and strategies, and encourage investors to seek the advice of a financial advisor. Oppenheimer & Co. Inc. will not treat non-client recipients as its clients solely by virtue of their receiving this report. Past performance is not a guarantee of future results, and no representation or warranty, express or implied, is made regarding future performance of any security mentioned in this report. The price of the securities mentioned in this report and the income they produce may fluctuate and/or be adversely affected by exchange rates, and investors may realize losses on investments in such securities, including the loss of investment principal.
Oppenheimer & Co. Inc. accepts no liability for any loss arising from the use of information contained in this report. All information, opinions and statistical data contained in this report were obtained or derived from public sources believed to be reliable, but Oppenheimer & Co. Inc. does not represent that any such information, opinion or statistical data is accurate or complete and they should not be relied upon as such. All estimates and opinions expressed herein constitute judgments as of the date of this report and are subject to change without notice. Nothing in this report constitutes legal, accounting or tax advice. Since the levels and bases of taxation can change, any reference in this report to the impact of taxation.
Investment Strategy should not be construed as offering tax advice on the tax consequences of investments. As with any investment having potential tax implications, clients should consult with their own independent tax adviser.
This report may provide addresses of, or contain hyperlinks to, Internet web sites. Oppenheimer & Co. Inc. has not reviewed the linked Internet web site of any third party and takes no responsibility for the contents thereof. Each such address or hyperlink is provided solely for the recipient's convenience and information, and the content of linked third party web sites is not in any way incorporated into this document. Recipients who choose to access such third-party web sites or follow such hyperlinks do so at their own risk. The S&P 500 Index is an unmanaged value-weighted index of 500 common stocks that is generally considered representative of the U.S. stock market. The S&P 500 index figures do not reflect any fees, expenses or taxes. This research is distributed in the UK and elsewhere throughout Europe, as third party research by Oppenheimer Europe Ltd, which is authorized and regulated by the Financial Conduct Authority (FCA). This research is for information purposes only and is not to be construed as a solicitation or an offer to purchase or sell investments or related financial instruments. This report is for distribution only to persons who are eligible counterparties or professional clients and is exempt from the general restrictions in section 21 of the Financial Services and Markets Act 2000 on the communication of invitations or inducements to engage in investment activity on the grounds that it is being distributed in the UK only to persons of a kind described in Article 19(5) (Investment Professionals) and 49(2) High Net Worth companies, unincorporated associations etc.) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended). It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons. In particular, this material is not for distribution to, and should not be relied upon by, retail clients, as defined under the rules of the FCA. Neither the FCA’s protection rules nor compensation scheme may be applied. This report or any portion hereof may not be reprinted, sold, or redistributed without the written consent of Oppenheimer & Co. Inc. Copyright © Oppenheimer & Co. Inc. 2015.