Ten Years After Lehman’s Collapse
By John Stoltzfus,
Chief Investment Strategist
Give Peace a Chance
As the trade skirmish heats up the title of a famous song comes to mind
Even as the trade skirmish heated up stocks stateside rallied across the major indices last week bolstered by a solid non-farm payrolls increase, modest wage gains and a slightly higher participation rate that moved the headline unemployment rate back to a 17-year low from an 18-year low.
This week marks the start of the second quarter reporting season for the S&P 500. Expectations are for strong results over the period. We’ll look for investors to have their usual earnings season focus over the next few weeks with an added angle to search for clues as to which companies are likely to suffer most and which could suffer least should what is so far a skirmish turn into a trade war.
Look for a combo of earnings results and trade skirmish “latest news from the trade front” to capture investors’ attention this week with several major banks kicking off the start of the US earnings season on Friday. We couldn’t help but gasp and then smile—if just a little—as we noted that the season begins on Friday the 13th .
Last week found market strategy in meetings with institutional investors in Asia, including in Beijing, Seoul, Taipei and Hong Kong. As much as we travel around the globe, it had been quite some time since we had been to three of four of our destinations. We noted some significant changes.
Beijing, a renowned champion of global scale in terms of size, had grown significantly more prosperous, taller and modern in the ten years since we had last visited. Japanese, Korean, German, and American automobiles and SUVs appeared prominent on that city’s boulevards of world class width and length in the three days we spent there. The shopping mall nearest where we stayed was a jewel box of world class stores, featuring prominent luxury brand names, crowded with casually well-dressed denizens of the city. Restaurants— particularly those that cater to well-heeled shoppers—appeared to be doing good business though we didn’t see many shopping bag laden shoppers in the two hours or so we spent on a Sunday afternoon window shopping and admiring the venue. Smartphone payments for purchases at restaurants dominated the transactions we witnessed in the time we spent at the mall.
“Our expectations remain for cooler heads to eventually prevail and succeed in remedying the current dysfunction in global trade to arrive at a workable solution.”
Our expectations remain for cooler heads to eventually prevail and succeed in remedying the current dysfunction in global trade to arrive at a workable solution.
Our next destination in our travels was South Korea. Seoul had grown in a manner relative to its size—like Beijing— substantially taller and more prosperous in the 14 years since we had last visited there. Heavy traffic with new automobiles dominated by Korean brands but with substantial representation of German and Japanese brands as well, reminded us of New York and the other major cities we travel regularly to stateside. Traffic jams in 2018 appear to be universal in our experience.
Unlike in Beijing where we had arrived early to allow time to get acclimated to the time zone differential in the region as well as to have opportunity to write and publish last week’s MSRS, we didn’t have time to window shop in Seoul.
Taiwan was a first visit for this strategist. We were impressed as with our first two destinations with the scale of Taipei, its prosperity as well as the high rate of fluency in English of the citizens we had opportunity to speak with outside of our business meetings (where English is always spoken well).
Our last stop in our travels last week was Hong Kong. We hadn’t visited the city in 14 years. We found the city taller and more prosperous as well as having an increased influence by the mainland as tourism and the financial sector have expanded to stand even larger than before. Infrastructure investment has been significant and includes an elevated highway that will connect Hong Kong to the mainland in the very near future. Many old buildings have been torn down since our last visit and replaced with a brace of super-sized office towers that dot the Hong Kong skyline.
In our meetings with financial professionals in each of the cities we visited, topics of interest as expected were quite familiar to discussions stateside and tied to global and regional economic data, market valuations, corporate revenue and earnings trends, relative valuations among diverse asset classes, market trends and thematic investment ideas.
Trade Tensions were a Top Concern
The main difference in topics to other meetings in past years here and everywhere of course was the trade skirmish/trade war thematic. An overall concern was notable in each city among all participants as the current events surrounding trade open a door to a space with many unknowns not only as to outcome but to the depth and breadth that trade could (or might not) be disrupted weighs on global investors’ minds.
The dollar, the price of oil, interest rate normalization, and day to day risk-on/risk-off market behavior along with other familiar factors that cause fluctuations normally in the markets now must make room for a material adjustment in the process of how global trade is conducted and priced by the market.
Considering the scope and complexity of global design, manufacturing and delivery of services and the number of countries involved patience will once again have the opportunity to be recognized as a virtue by investors./p>
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
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.