Market Strategy 9/9/2019
Hooked on a Feeling
Key Takeaways
- This week investors will be focused on economic data stateside and in Europe with the ECB rate decision due on Thursday.
- Last week saw a shift in investor sentiment away from defensive sectors and toward cyclicals.
- Ten-year US Treasury yields moved higher last week, closing at 1.56% on Friday. It was the first week in six that the yield on the 10-year ended higher, suggesting that the benchmark yield may have reached its low for this period.
- Last week’s payrolls report while short of expectations seemed like “progress not perfection” and consistent with the ebbs and flows of the data.
As we prepared to go to press this week stocks in Asia broadly edged higher as economic stimulus efforts announced by China last Friday (via lower reserve requirements for domestic banks) helped offset news that China’s export numbers for August reflected the effects of the tariff war on sales to the US as shipments from China unexpectedly declined 16% from a year earlier.
Last week stocks stateside and around the world got a boost from remarks by Fed Chair Jerome Powell at a meeting in Zurich signaling that the Federal Reserve remains committed to a policy highly sensitive to the vulnerabilities in the US economy in this time of trade war. US equities also got a boost from jobs related data released last Friday that reflected stateside resilience in the face of the current spate of economic slowing tied to cyclical issues and the trade dispute.
News that trade talks between the US and China will include a visit to Washington, DC from Chinese trade officials in October has provided global equities a boost.
With the United States hiking tariffs at the start of the month, followed by China’s retaliatory efforts and the potential for further escalation of hostilities if progress fails, investors could benefit from keeping things in context and recalling the bull market’s predilection for climbing a wall of worry over the last ten-plus years.
This week the ECB’s rate decision will be front and center for investors on Thursday with markets wishing and hoping for some additional stimulus as economies in the Eurozone remain hostage to persistent slow growth with much of it tied to a reluctance by countries in the region to provide fiscal stimulus to offset repercussions from the trade war between the US and China.
With the S&P 500 around 1.5% below where it was on July 26th (when it was at 3,025.86) we believe investors should keep expectations right sized for now with prospects for markets to remain susceptible to interim volatility as trade war uncertainty persists creating a negative overhang on economic growth and corporate earnings projections. The recent shift from “risk off” to “risk on” could easily be challenged by a Presidential tweet or a sour piece of interim data.
Key in our view at present time is to remain diversified in portfolio positioning, keeping an eye out for opportunities that can surface in pull backs or on market rotations and rebalancing. For intermediate to longer-term investors with goals and objectives 3, 7, 10 and more years out patience is likely to be proven a virtue in an environment wherein transition is a central driver of longer-term market behavior. With globalization, technology, low interest rates, and low inflation key thematic factors worldwide, equities remain our favorite asset class for now.
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