Ain’t No Cure for the Summertime Blues
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>
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