Market Strategy 10/14/2019
We’ve Only Just Begun
Bulls celebrated while bears and skeptics doubted the progress that came out of last week’s trade talks
Key Takeaways
- Negotiations between the US and China reached a point where “Phase One” might be just the starting point as China signaled it wants further talks.
- We’ll happily accept a “progress not perfection” resumption of negotiations toward a more comprehensive agreement as we believe that both sides have compelling reasons to see such a deal come together.
- Investors will also have the start of Q3 earnings season this week to contemplate.
This week will find investors focused on any further progress made between the US and China in their latest round of efforts to resolve the trade war that has disrupted global trade, rattled markets, lowered prospects for global growth and raised recession risk worries at home and abroad.
Market bulls late last week embraced “the progress not perfection” developments that came out of the first week of the latest round in trade talks between high level officials of the US and China in Washington, DC.
This morning Bloomberg reported that China “wants further talks to hammer out the details of the “Phase One” trade deal with the US.”
We’ll gladly accept the steps taken toward resolution of the trade fracas last week by both sides—even as enough challenges remain ahead to provide opportunity for weeks of “two steps forward one step back” action- filled-drama to keep investors and observers guessing as to the ultimate outcome for some time.
We’ll suggest investors keep expectations right-sized and enjoy the “every great journey starts with one small step” sentiment of “a phase one” “agreement to agree” at some point for now.
Beyond news from the trade war front and economic data scheduled to be released this week, investors will want to keep an eye out for the unofficial start of Q3 earnings season for the S&P 500 that starts Tuesday when the major banks begin to report earnings results. As earnings season gets underway the markets will become increasingly sensitive to results and the degree to which they surprise positively or disappoint.
Our expectations are that with consensus earnings forecasts having been cut substantially ahead of Q3 earnings season chances are there’ll once again be enough earnings surprises to the upside to produce an earnings season that disappoints considerably less than was expected initially. This has happened numerous times this cycle with chances for a repeat performance in this quarterly earnings season.
Economic data released at the start of this week showed that China’s imports and exports were worse than expected last month (with exports and imports respectively falling 3.2% and 8.5% y-o-y in September). We believe that this adds to the likelihood that China will remain amenable to working toward a resolution of the trade conflict.
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