Posts Tagged ‘U.S. stock market’

Forget China Worries: This Will Trigger the Next Massive Stock Market Rally

December 8, 2018

I’ve got good news and bad news.

First, the good news: even though stocks popped after the US and China hit pause on the trade war, there are still plenty of deals to be had. I’ll give you 3 smart buys—with an average dividend of 7% and serious upside—in a moment.

Now the bad news: time is short. If you want to grab the biggest gains on offer here, you need to move soon.

Trade Ceasefire Opens Buy Window …

The way I see it, the trade-war ceasefire is likely the beginning of a deal coming down the pipe in the next three months. That means the market’s biggest anxiety is over—and we’re nicely set up for more upside!

I write on high yield assets that deliver a reliable income stream.

You’re probably wondering why I’m so confident.

Image result for richard drew, U.S. Stock exchange photos

New York Stock Exchange FILE photo by Richard Drew, AP

For one, the fear that the US and China, two of the largest trading partners on earth, would fail to reach some kind of deal has always been irrational.

Second, the recent market stumble has been way out of step with sky-high earnings growth we’ve seen (S&P 500 profits rose 25.9% in the third quarter, even stronger than the record-high growth in the first half of the year), and breakneck sales growth (revenues jumped 9.3% in Q3, again above expectations).

But the best thing about the market now is something we hear nothing about: tardy fund managers.

… And the Race Back in Is On!

Here’s what I mean: market hysteria resulted in a steady selloff of assets among equity funds, and that didn’t stop, even as the data got better. For instance, Thanksgiving week saw fund managers dump stocks all around, resulting in $8.5 billion in cash flowing out of equity funds for the week.

All told, it was the worst Thanksgiving week for fund outflows since 2011.

This is a clear case of late selling on the trade-war noise. Now that a deal looks like it’s in the offing, fund managers will slowly buy back in.

And you know what that means: rising stock prices.

If fund managers are likely to pile into stocks in the next few weeks, wouldn’t it make sense to buy in now, before they do?

The answer is yes—and here are 3 closed-end funds (CEFs) that should be near the top of your list.

3 Comeback Kids Paying Up to 9.6%

If you want to play this oversold market for capital gains and market-busting income, the options are plenty. In a November 19 article—“An ‘Instant’ 3-Fund Portfolio for 9.8% Dividends and 40% Upside”—I mentioned the Boulder Growth and Income Fund as a buy because of its attractive, value-driven portfolio and the fact that it trades at a huge discount to the value of that portfolio.

BIF is only getting started, so it remains an attractive option, as its market price trades at a 16.8% discount to net asset value (NAV, or the value of its underlying portfolio), and its 3.5% income stream is growing.

Another option: the Gabelli Utilities Fund, which has been one of the strongest performers in its class. The market, however, has punished it with a big selloff. But that’s changing, and GUT is starting to attract more buyers!

You don’t have much time to get into this fund before the market closes the gap, which is why you should consider jumping in now for a 9.6% dividend yield and capital gains that will likely come hard and fast in the coming weeks.

Finally, our third fund: the Nuveen S&P 500 Dynamic Overwrite Fund, which uses a covered-call strategy to boost its yield to 6.9% while giving you exposure to the broad index.

Recent volatility has made the fund a decent performer, but the market doesn’t care, which is why SPXX’s price return is negative and its NAV return is positive, resulting in a 2% premium to NAV, far lower than the 15% premium it had back in May or the 5% average premium it’s had over the last couple years.

With the market’s slowness to respond to fundamentals, these are 3 funds you could buy with confidence now, both for their income and their upside potential—but hurry before the fund managers catch on!

Disclosure: none

I have worked as an equity analyst for a decade, focusing on fundamental analysis of businesses and portfolio allocation strategies. My reports are widely read by analysts and portfolio managers at some of the largest hedge funds and investment banks in the world, with trill…

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Michael Foster is the Lead Research Analyst for Contrarian Outlook. For more great income ideas, click here for our latest report “Indestructible Income: 5 Bargain Funds with Safe 8.5% Dividends.”

https://www.forbes.com/sites/michaelfoster/2018/12/08/forget-china-this-will-trigger-the-next-massive-rally/#635dbcee3a83

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Huawei Arrests Shows U.S., Canada Mean Business — Trump’s Confronting China Wins Over Skeptical CEOs

December 8, 2018

Some American executives now see administration’s blunt approach as best shot to resolve intellectual-property grievances

Donald Trump and Xi Jinping at a dinner meeting on Dec. 1 Photographer: Pablo Martinez Monsivais/AP

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When President Trump first threatened to levy major tariffs on China, business leaders worried the administration was using the wrong weapon on the right target.

It wasn’t the flood of washing machines coming in and the trickle of Fords going out that raised the ire of America’s CEOs. They wanted something done about counterfeiting, allegations that the Chinese were stealing U.S. intellectual property and investment rules Beijing leans upon that force technology transfers.

Getting China to play by the rules has proven tough over past decades. International bodies—such as the Word Trade Organization—have insufficient power. Export controls and indictments are tools to address theft, but they work only in specific situations and can require cooperation from U.S. companies that may be reluctant to rock the boat.

It’s becoming clear Mr. Trump’s prolonged tit-for-tat trade fight may represent American business’s best shot at addressing those long-standing grievances.

“Calling the abuser an abuser to their face is the first step,” Basheer Junjua, chief executive of San Francisco software development firm Calculi, told me this past week at The Wall Street Journal’s CEO Council in Washington.

U.S.-China tensions have rattled markets. The Dow industrials started the past week strong after positive news on the trade front but plunged as doubts about a favorable outcome re-emerged. The arrest of a senior executive of networking-gear maker Huawei Technologies Co. on Wednesday intensified negotiations on trade.

The dozens of CEOs gathered for the Journal’s meeting in the capital, however, suggest business leaders have shifted their view of Mr. Trump’s confrontational approach. They now say they are encouraged that the administration recognizes complex problems demand sophisticated solutions.

National Security Adviser John Bolton outlined how negotiations could take a turn over a 90-day cease-fire China and the U.S. agreed to this past week. Speaking to the CEO Council, he proposed a rule that says there will be no imports into the U.S. of products or services based on the theft of American innovation.

“That’s not a tariff question,” he said. “That’s a way of defending intellectual property from the United States.”

Mr. Bolton insisted the administration can’t ensure fair trade without getting China to agree to a broad set of reforms.

“Let’s take a show of hands,” Mr. Bolton said to the assembled CEOs. “How many of you believe in free trade?” Several hands went up. “How many of you believe that free trade means allowing the Chinese to kick us around, steal your intellectual property and not respond to it?”

No hands went up.

When critics accuse the administration of not pursuing a free-trade policy by goading the Chinese, he concluded, “I say if there’s going to be free trade, they’re going to have to live by it.”

, the president of the U.S. Chamber of Commerce’s China Center, said the White House has a supportive audience in the business community when it comes to confronting China. When Mr. Trump came to office, there was “a frustration that had been building over a number of years.”

Many companies across many sectors have rushed to China, seeking a new market for goods and a lower cost for manufacturing. As they did, it became increasingly clear what price they had to pay to enter the most populous nation in the world.

“The allure of a billion-plus-people market is an allure for every company,” Mr. Janjua, the Calculi CEO, said. “However, they made the rules say ‘if you want to come work with us you have to put all the technology on the table.’ ”

The trade-off is costly. Earlier this year, the White House published research estimating an annual cost of between $250 billion and $600 billion to the U.S. economy from China’s counterfeit goods, pirated software and theft of trade secrets. By comparison, the National Science Foundation estimates the U.S. spends an average of $445 billion in annual research and development.

Several experts say past administrations attempted to address alleged abuses but lacked resolve. For instance, many companies and regulators figured China would eventually act like the rest of the countries in the WTO.

“People were making a bet which direction China would take, and it looked like China would follow global rules,” said James Andrew Lewis, a vice president at the Center for Strategic and International Studies, a bipartisan research organization in Washington. When it comes to trade, Mr. Lewis says China’s strategy to win at any cost often overshadows the desire to be seen as a good citizen of the world.

“Calling the abuser an abuser to their face is the first step.”

—Basheer Junjua, chief executive of software development firm Calculi, on the need to confront China on intellectual-property grievances

Abigail Grace, a researcher at the Center for New American Security, a bipartisan think tank in Washington, said the Obama administration was initially reluctant to call China out on specific allegations of theft or counterfeiting. That’s because it was trying to get Beijing to cooperate on various multilateral agreements.

“If one pushed China too hard on individual issues, it would jeopardize those broader goals,” Ms. Grace said.

President Obama took a harder line with China during his second term when it became clear Chinese President Xi Jinping wasn’t going to open the Chinese market up as much as initially hoped, she said. Getting the support of American business was tough, Ms. Grace said, because “companies were hesitant to admit this type of rampant IP theft was taking place because of how shareholders might respond.”

Mr. Lewis, a former foreign service officer in the State and Commerce departments, said reforms could be messy, particularly because of the interconnectedness of supply chains or joint ventures.

For example, his organization is preparing to publish a report on whether the next generation of cellular networks, known as 5G, is viable without China’s help.

He said companies like China’s Huawei or ZTE Corp. “can’t make products without U.S. technology.”

Can Western firms could pull off 5G without Chinese partners? “The answer is yes, but it is going to cost a lot more.”

Write to John D. Stoll at john.stoll@wsj.com

Appeared in the December 8, 2018, print edition as ‘Trump’s China Tack Wins Fans.’

https://www.wsj.com/articles/trumps-tough-china-tack-wins-over-skeptical-ceos-1544245201

Here’s What Wall Street Hopes Will Stem the Sell-Off in Equities

November 20, 2018

Weeks have become months in measuring stock market pain. What can heal it? It’s easier to list the things that have failed.

Related image

Lines on charts didn’t work. A favorite boundary for bulls, the 200-day average in the S&P 500, is a distant memory. Earnings have come and gone — they made things worse. Midterms? Nope. Falling yields? Haven’t helped. The decline showed no sign of abating Monday as the Nasdaq 100 fell 3.3 percent to the lowest since April.

Following are the views of seven money managers and strategists on what could conceivably put a brake on the selling. It starts with views held by virtually everyone, that a softening in Federal Reserve rhetoric or in Donald Trump trade bluster would be the fastest route to relief. Then it gets into some other ideas.

Trade War

Ryan Nauman, market strategist at Informa Financial Intelligence:

“No. 1 could be trade. At the G20 summit, if we get some good news out of there and maybe some optimism building on the trade front, that could potentially give us a boost. In order for the markets to get to the next level and break through this range we’re in, the trade issue will have to be resolved. And once that is — if it is — then markets will break through with some optimism.”

Kristina Hooper, chief global market strategist at Invesco Ltd:

“This sell-off is largely driven by growing concerns over the trade situation and therefore it will take a positive development in trade to take pressure off markets. Now, that’s somewhat simplistic, since there is certainly concern over the slowdown that we are seeing globally but that slowdown is relatively modest. I believe it has been partially caused by concerns over trade and the economic policy uncertainty that comes with it. In my view, a positive trade development would likely be the easiest way to end this sell-off.”

Jay Powell

Max Gokhman, head of asset allocation for Pacific Life Fund Advisors:

“Another person who could help is Powell in December, but that’s tricky because skipping a hike could indicate the economy is slowing down and result in further selling as investors get spooked even more. There’s room to be dovish without sounding alarmist by changing the balance sheet wind down though, but again it would be quite a tightrope to walk on.”

Tim Courtney, chief investment officer of Exencial Wealth Advisors, said in a phone interview from his Oklahoma City office:

“If the market gets more comfortable with the Fed not going bananas on raising rate — and I think they won’t — the Fed has got to talk a good game, they have to talk the talk and maintain their independence — but when push comes to shove, the market will be comforted by the Fed not being as aggressive as they’ve indicated they might be. As earnings come in and continue to be strong, if we see any progress at all towards U.S. and China working this trade situation out, the Fed’s reasonable stance or agreement on trade, that could be the catalyst to end the year strong.”

Earnings Growth

Brad McMillan, chief investment officer for Commonwealth Financial Network, which oversees $156 billion:

“What’s driving this pullback is not the deterioration in fundamentals. What’s driving it is the change in confidence about future growth. Confidence has to come back. A lot of these companies may have hit the peak of the growth cycles, and investors are probably starting to realize that. It’s a healthy repricing, which will be more reality-based. If the confidence about profit growth returns, we may see prices going up again. Yes, it’s unpleasant, we haven’t seen anything like this for a while, but it’s not the end of the world, for now. The results are not that bad.”

Tech Reversal

Andy Kapyrin, director of research at RegentAtlantic, which has $3.7 billion in assets under management:

“Tech stocks have an easy time ignoring the macro news wherever they deliver strong growth. That’s why they’ve done so well from April to September: investors didn’t lump them together with other assets. Now investors are not only lumping them together with other assets, but they’re hitting them harder because the good news is gone. What will be crucial for many companies, especially Apple and Amazon is this holiday shopping season. That’s going to make or break their sales. If tech companies can conquer the growth outlook in the next two months, we may see the entire sector reverse.”

Upside Data Surprises

John Iborg, portfolio manager at QS Investors:

“We will have to wait and see how Q4 earnings look in a few months. Until then, positive surprises in economic data in the U.S. and abroad along with further clarity around or easing of trade tensions will certainly help. In the near-term, it is very tough to say with any degree of certainty at this point. For one, volatility may temporarily abate going into the end of the year, with the holiday season upon us. Aside from that, market sentiment for FAANG stocks will probably be a key driver.”

https://www.bloomberg.com/news/articles/2018-11-19/here-s-what-wall-street-hopes-will-stem-the-sell-off-in-equities

Tech losses drag Asia stocks, Ghosn arrest hits Nissan, Mitsubishi

November 20, 2018

Technology firms led a sell-off across Asian markets Tuesday on fresh concerns about demand for Apple’s iPhones, while Japanese car giant Nissan and Mitsubishi plunged on news chairman Carlos Ghosn had been arrested over alleged financial misconduct.

After a brief couple of days of stability, panic returned to trading floors following a report that the US titan had slashed production of its popular handset.

That comes just a week after a supplier suggested the firm had cut orders, fanning speculation the latest incarnation of the gadget is not selling as much as hoped.

© AFP | The arrest of Carlos Ghosn, who is credited with rescuing Nissan, sent shares in the firm plunging with Mitsubishi in Tokyo

Apple collapsed four percent in US trade with Facebook, Amazon, Google parent Alphabet and Microsoft each diving three percent or more.

The losses filtered through to Asia, where Apple suppliers were also in trouble.

In Tokyo, Japan Display, which has lost about a third of its value over the past week, was off 3.9 percent by the break while Alps Electric fell 1.3 percent. Among other tech firms Sony shed 2.6 percent and Hong Kong-listed Sunny Optical Technology dived 2.8 percent.

Taiwan Semiconductor Manufacturing Company shed 1.1 percent in Taipei and Delta Electronics was off 0.8 percent.

Broader markets were also well down as investors fret over a number of issues, with attention now turning to next week’s G20 summit in Argentina, where Donald Trump is expected to meet Chinese President Xi Jinping to talk trade.

There had been some hope that the world’s two economies could find a resolution to their painful tariffs row but a clash of words at the weekend between Xi and Trump’s vice president Mike Pence has muddied the waters.

“A comprehensive trade agreement at the G20 that rolls back the tariffs still looks unlikely,” warned Bank of Singapore currency strategist Sim Moh Siong. “But a constructive US-China statement, agreement to restart talks and a tariff pause appear to be emerging possibilities.

“The most positive outcome at G20 would be the White House ‘stopping the clock’ on the now-scheduled ramp-up in tariffs from a 10 percent rate to a 25 percent rate, moving that date from 1 Jan 2019 to a later date.”

This, he added, would provide some stability to the Chinese yuan and under-pressure Asian currencies.

Hong Kong fell 1.4 percent in the morning, Shanghai was off one percent, while Sydney, Seoul and Singapore each fell 0.8 percent. Wellington dropped one percent, Manila 1.2 percent and Taipei 0.6 percent.

Tokyo was down 0.9 percent by lunch.

Nissan lost 4.3 percent and Mitsubishi sank 7.1 percent as they prepared to sack Ghosn after it emerged he had been taken into custody as detectives looked into claims he under-reported his income for years.

Ghosn has long been a major player in the car industry and is credited with resurrecting the once-troubled Nissan, which he allied with Mitsubishi and France’s Renault.

Renault’s share price plunged eight percent in Paris.

Nissan CEO, Hiroto Saikawa insisted the partnership among the three “will not be affected by this event” but had no details on how the other firms would respond, or who might succeed Ghosn.

– Key figures around 0230 GMT –

Tokyo – Nikkei 225: DOWN 0.9 percent at 21,633.64 (break)

Hong Kong – Hang Seng: DOWN 1.5 percent at 25,974.16

Shanghai – Composite: DOWN 1.0 percent at 2,676.80

Euro/dollar: DOWN at $1.1448 from $1.1452 at 2200 GMT

Pound/dollar: UP at $1.2853 from $1.2850

Dollar/yen: UP at 112.60 yen from 112.54 yen

Oil – West Texas Intermediate: UP three cents at $57.23 per barrel (new contract)

Oil – Brent Crude: DOWN four cents at $66.75 per barrel

New York – Dow: DOWN 1.6 percent at 25,017.44 (close)

London – FTSE 100: DOWN 0.2 percent at 7,000.89 (close)

Stock Slump to Extend to Asia as U.S. Tech Sinks

November 20, 2018
  • Futures tip losses in Japan, H.K.; S&P 500 futures head lower
  • 10-year Treasury yield holds 3.06%; yen gains as dollar stable

Stocks in Asia are poised to decline Tuesday after weakness in some of the biggest technology companies sent U.S. stocks tumbling, adding to pessimism about escalating trade tensions. The yen advanced while the dollar and Treasuries were little changed.

Futures signaled losses across the region after software developers and semiconductor manufacturers led the S&P 500 Index lower. Australian shares fell at the open. The Nasdaq 100 Index plunged more than 3 percent to the lowest since April on renewed concern the trade war will hurt global demand and disrupt supply chains for the major technology companies that have carried the bull market for almost 10 years. Europe’s Stoxx 600 Index fell following a plunge in Renault SA on misconduct allegations against the carmaker’s leader, Carlos Ghosn.

Investors are reassessing their expectations after several weeks of volatility spurred by fears of an escalation of the trade conflict and a slowing global economy. Ray Dalio, founder of Bridgewater Associates, the world’s largest hedge fund firm, said that investors should expect low returns for a long time after years of low interest rates and quantitative easing have squeezed most of the returns out of assets in the U.S. Meanwhile, optimism that relations between the U.S. and China would improve at Group-of-20 meetings starting next week, dissipated.

“It feels once again that markets are craving certainty on a number of issues before we can see a return of trending markets,” said Nick Twidale, chief operating officer at Rakuten Securities Australia, in a note to clients. “Unfortunately at the moment it looks like we set for more volatility before this can come about.”

Elsewhere, the pound fluctuated as U.K. Prime Minister Theresa May appealed to business leaders to help deliver her Brexit deal, and Gibraltar emerged as a fresh sticking point. Bitcoin fell below $5,000 for the first time since October 2017. Crude rose past $57 a barrel.

Terminal customers can read our Markets Live blog.

Coming Up

  • Bank of England Governor Mark Carney appears before parliament on Tuesday.
  • It’s a shortened trading week because of the Thanksgiving holiday in the U.S. on Thursday. In addition, Black Friday, the day after Thanksgiving, marks the traditional start to the U.S. holiday shopping season.

These are the main moves in markets:

Stocks

  • Futures on the Nikkei 225 Stock Average fell 1.3 percent in Singapore.
  • Australia’s S&P/ASX 200 Index dropped 0.3 percent.
  • Hong Kong’s Hang Seng Index futures declined 1.2 percent.
  • S&P 500 futures were little changed. The S&P 500 sank 1.7 percent, while the Nasdaq 100 plunged 3.3 percent.

Currencies

  • The Japanese yen rose 0.1 percent to 112.47 per dollar.
  • The offshore yuan was steady at 6.9341 per dollar.
  • The Bloomberg Dollar Spot Index ended Monday little changed.
  • The euro traded at $1.1456.
  • The British pound added 0.1 percent to $1.2864.

Bonds

  • The yield on 10-year Treasuries held at 3.06 percent.

Commodities

  • West Texas Intermediate crude climbed 1.1 percent to $57.38 a barrel.
  • Gold was little changed at $1,223.94.
  • The Bloomberg Commodity Index gained 1.1 percent.

— With assistance by Vildana Hajric, and Sarah Ponczek

https://www.bloomberg.com/news/articles/2018-11-19/stock-slump-to-extend-to-asia-as-u-s-tech-sinks-markets-wrap?srnd=premium

Stock Market Bulls Re-Emerge After Bruising Selloff

November 9, 2018

Analysts warn recent turbulence is likely to continue despite cheaper valuations and expectations for further profit growth

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Money managers are doubling down on stocks after a brutal October selloff, as cheaper valuations and the potential for continued profit gains help support a rebound among equities.

UBS Group AG said Thursday it was increasing its exposure to stocks, including in the U.S. and emerging markets, while asset-management giant BlackRock Inc., BMO Global Asset Management and QMA, the $128 billion quant-equity arm of PGIM, Prudential Financial ’sinvestment-management business, all recently reiterated their preference for stocks.

The pronouncements come as many investors are still trying to determine where major indexes are headed after stocks around the world lost about $4.5 trillion in value last month. For many, the selloff was swift and jarring as companies were in the midst of reporting another quarter of robust profit growth.

But cheaper valuations and expectations that profits will continue to grow in 2019, even without the benefit of a massive corporate tax cut, have supported asset managers’ moves to increase exposure to stocks.

The outlook has contributed the S&P 500’s 3.5% gain so far in November, bringing the broad index up nearly 5% for the year as it continues to work on recouping its October losses.

“Although we are mindful of the potential risks of adding to stocks against such a backdrop, we believe the scale of the selloff has been disproportionate,” UBS’s investment strategists wrote in their note, saying they would increase exposure to stocks after paring back their position in July.

“Even if we use our own relatively cautious estimates on earnings for 2019, which include the expected impact of tariffs in the U.S. and Asia and a modest slowdown in headline economic growth, valuations still look favorable,” the bank added.

The S&P 500 is trading near its lowest average valuation of the year. The broad index is currently trading at 16 times forward earnings, down from 17 times at the end of the September, according to FactSet. Meanwhile, the risk premium among U.S. shares stands at 4.6%, above the long-term average of 3.2%, UBS added.

“With solid corp earnings, valuations have become more attractive given the selloff over the last month, removing a potential headwind,” said Jon Adams, an investment strategist at BMO, which is overweight U.S. equities.

In emerging markets, equities are now trading at 11 times future earnings, a discount to the 30-year average of 13 times, according to UBS. European stocks are trading at 12 times future earnings, versus a long-term average of 16 times.

Still, analysts warn that the recent turbulence among stocks is likely to continue. Trade negotiations are ongoing and investors expect further volatility ahead of and during the Group of 20 summit later this month in Argentina, where President Trump and Chinese President Xi Jinping are expected to meet.

Expectations for political gridlock in the U.S. with a divided Congress could also send shockwaves through the stock market in the near term, several analysts said.

Despite those issues, UBS said “the value offered by global stocks justifies tolerating the potential for higher volatility, and we expect markets to move higher.”

To receive our Markets newsletter every morning in your inbox, click here.

Write to Michael Wursthorn at Michael.Wursthorn@wsj.com

https://www.wsj.com/articles/stock-market-bulls-re-emerge-after-bruising-selloff-1541768401

China Trade War — Here’s What Trump is Thinking

November 4, 2018

President Donald Trump’s hopeful signals about a thaw in the China trade war weren’t just fake news to boost the stock market ahead of the election, as some commentators speculated. Ramping up China trade talks to avert a major escalation of Trump tariffs makes perfect sense now.

The president has played his last big Trump tariffs card and will never have more leverage for a China trade deal. Yet Trump also may be realizing that his coming decision could be one of the most fateful of his presidency.

The thought that Trump was mainly toying with Wall Street seemed to go out the window Friday morning. The Dow Jones, S&P 500 index and Nasdaq all took a tumble as top White House economic advisor Larry Kudlow denied a report that Trump had tasked Cabinet officials to draw up terms of a trade deal ahead of a Trump-Xi meeting scheduled for late this month. The indexes firmed after Trump reiterated his hopes for a deal. The Dow Jones closed down, the S&P 500 0.6% and the Nasdaq 1%. Apple (AAPL) earnings and a jump in Treasury yields as wage growth hit a nine-year high also were in focus.

There are two possible outcomes of the push to reach a China trade deal with Chinese President Xi Jinping. Let’s first address the outcome that seems impossible: addressing the underlying tensions that threaten the world’s most important economic relationship.

Strategic U.S. China Trade Deal Unlikely

Beijing has made clear that it won’t give up its state-funded Made in China 2025 ambitions to overtake U.S. global technological leadership. Given the track record of Chinese companies wresting, or stealing, intellectual property from U.S. and other international companies, and Beijing’s foot-dragging on opening markets and rising tensions over the South China Sea, trust is in very short supply. The superpower rivalry likely runs too deep to forge a new economic pact that meets each side’s strategic goals.

China Trade War Seen

JPMorgan analysts and others on Wall Street expect Trump tariffs to escalate until they cover all half-trillion dollars worth of Chinese imports. Trump administration sources told Bloomberg early this week that Trump will choose the full-fledged China trade war option if the coming Xi talks don’t bear fruit.

Yet Trump always has been reluctant to drive an irreparable break in the economic relationship with China. He didn’t think he would have to go as far as he has. Even after Trump stepped in to save Chinese telecom gear giant ZTE from a death at the hands of American sanctions, Xi wasn’t willing to meet his demands.

Now Trump has unloaded tariffs on $250 billion in Chinese imports, with tariffs set to escalate to 25% from 10% on a $200 billion tranche on Jan. 1. With his last card — Trump tariffs on all Chinese imports — now credibly played, the question is what will Xi offer.

What China Trade Deal Will Trump Accept?

Trump might take a China trade deal that does little for America’s longer-term strategic interests but avoids the economic fallout of a U.S.-China divorce. He almost settled for stepped-up Chinese purchases of U.S. agricultural and other goods. That would have chipped away at the massive U.S. trade deficit with China. Yet that trade gap has kept rising under Trump. The Commerce Department reported on Friday that the goods trade deficit with China jumped to a record highof $40.2 billion in September, reaching $301.4 billion year to date.

While big trade deficits don’t trouble Wall Street and the economics profession, Trump has accused China of plundering U.S. wealth.

Trump’s initial demand was for Xi to cut the bilateral trade deficit by $200 billion a year. That was a nonstarter. In May, China offered to buy $70 billion in additional U.S. goods over a number of years. Trump seemed on the verge of accepting but backed away, then went on offense.

What China Trade Deal Will Xi Offer?

It’s not clear the extent to which subsequent Trump tariffs and threats have loosened Xi’s purse strings. Beijing has chafed at Trump’s bullying and signaled that capitulation would wound its national honor. Yet Xi probably underestimated how far Trump was willing to go. He’s probably willing to stretch somewhat more for a deal, though not too far.

Trump has a huge decision. Does he accept a China trade deal that delivers a short-term win but leaves the trade deficit stubbornly high and does little to restrain Beijing’s global ambitions? Or does he opt for escalating Trump tariffs in the China trade war, which risks taking a bite out of the Trump economic boom and keeping the Dow Jones under pressure?

There’s a good chance that not even Trump knows what he will do.

By 

https://www.investors.com/news/economy/dow-jones-china-trade-war-trump-tariffs-strategy/

Related:

China is The Big Driver in the U.S. Stock Market

November 3, 2018

Image result for china, flag, map

It isn’t the Federal Reserve, peak growth or a slowing economic expansion

U.S. stocks bounced back this week after a nasty October. And while experts have cited a number of factors behind the resurgence in equities—including stocks being oversold and a strong economic backdrop—it would appear that one key narrative has helped to drive stocks toward a four-day rally: developments around the U.S.-China trade skirmish.

Read: Here’s the key question for U.S. investors about the trade skirmish with China

As the chart above highlights, upbeat tariff talks between Washington and Beijing have had a singular effect on stocks, highlighted most recently by a recent uptrend that has added more than 900 points to the Dow Jones Industrial Average DJIA, -0.43% since Monday’s ugly start to the week.

Also readTrade-war tracker: Here are the new levies, imposed and threatened

Thus far, four notable developments have injected a fresh dollop of optimism on Wall Street:

Check out this tweet from CNBC’s Eamon Javers:

Eamon Javers

@EamonJavers

NEW: A senior administration official tells me that the report president Trump is ready to cut a trade deal with China is not true. “There is a long way to go” on negotiations, the official said.

Other market participants were throwing more cold water on recent reports, questioning the likelihood the Trump administration was drafting an accord with China. Investors also have harbored doubts about the timing of upbeat reports on imminent trade pacts ahead of important midterm election on Nov. 6. Those elections are likely to shift the balance of power on Congress.

That is reflected in the following tweet from Joe Brusuelas, chief economist with RSM:

Joseph Brusuelas@joebrusuelas

Rumors of a US-China trade truce look more like an attempt to talk up the market ahead of the election rather than real progress on the trade spat. I’m still telling client to prepare for a full 25% tariff on $517 billion of Chinese imports by mid-2019.

Friday afternoon, Larry Kudlow, a top economic adviser for President Donald Trump, refuted the Bloomberg report, sending shares to fresh lows.

Earlier Friday, the Dow slipped into negative territory, giving up early gains. The S&P 500 index SPX, -0.63% and the Nasdaq Composite Index COMP, -1.04% also pulled back, with a decline in shares of Apple Inc. AAPL, -6.63%  adding to the retreat.

Check out: 5 things about a U.S.-China trade war that might surprise investors

Chris Senyek, chief investment strategist at Wolfe Research, earlier this week highlighted the notion, echoed by many previously, that trade issues remain at the forefront of investors’ minds:

Trade has been a key driver of the global growth outlook in recent years. More specifically, competitive devaluations created stiff headwinds for trade and the world economy throughout 2015. We believe that the end of this destructive process was a key catalyst behind strong synchronized global growth in 2016-17. More recently, it appears that President Trump’s trade actions created a major drag on trade in the first half of this year, before activity levels started to recover as U.S. was making progress in renegotiating deals with Canada, Mexico, Europe, and South Korea.

He offers this chart to illustrate:

Trade issues have been at the center of Wall Street’s concerns because they have the potential to ripple into every other issue that has been besieging investors, if it escalates. That includes the growth outlook for U.S. corporations, an economic slowdown in China, the pace of rate hikes and the health of the U.S. economy and stock market, market participants have said.

https://www.marketwatch.com/story/this-chart-shows-why-trade-war-fears-are-the-biggest-catalyst-for-the-stock-market-2018-11-02

Smartphone sales down for fourth straight quarter — U.S. stock market down

November 2, 2018

Global smartphone sales fell for a fourth consecutive quarter in the period through September, suggesting a challenging market for device makers awaiting catalysts to spark sales, researchers said.

A report by research firm IDC late Thursday showed 355 million handsets delivered in the third quarter, a year-on-year decline of six percent.

“IDC maintains its view that the market will return to growth in 2019, but at this stage it is too early to tell what that growth will look like,” the report said.

A separate survey by Strategy Analytics showed an eight percent drop in sales to 360 million units.

© AFP/File | Samsung kept the top spot in the global smartphone market which saw a fourth consecutive sales decline, according to research firms

“The global smartphone market has now declined for four consecutive quarters and is effectively in a recession,” said Strategy Analytics director Linda Sui.

“The smartphone industry is struggling to come to terms with heavily diminished carrier subsidies, longer replacement rates, inventory buildup in several regions, and a lack of exciting hardware design innovation.”

According to Strategy Analytics, Apple’s iPhone sales of 46.9 million units suggested the California giant is focusing on price increases, capping its overall volume growth.

Samsung remained the top vendor with just over 20 percent of sales, according to both surveys.

Chinese-based Huawei held second place with over 14 percent and Apple remained third with roughly 13 percent.

The fourth and fifth largest, respectively, were Chinese device makers Xiaomi and Oppo.

The researchers said a slowdown in China is a major factor in the slump in global sales, while noting that the market could pick up next year as makers introduce new devices compatible with superfast 5G, or fifth-generation wireless networks.

“China’s domestic market continues to be challenged as overall consumer spending around smartphones has been down,” said Ryan Reith, program vice president with IDC.

“Despite this, we believe this market will begin to recover in 2019 and beyond, driven in the short term by a large, built up refresh cycle across all segments, and in the outer years of the forecast supported by 5G migration.”

AFP

U.S. stocks back in the black for the year

October 31, 2018

Bargain-hunting rescues beaten down stocks from their lows

Related image

By Pan Kwan Yuk in New York

Wall Street clawed back some of its steep October losses on Tuesday, as bargain hunters swooped up beaten-down stocks and helped push the S&P 500 and the Dow Jones Industrial Average back into the black for 2018. The S&P 500 ended the day up 1.6 per cent, putting it back up 0.3 per cent for the year.

However underscoring the brutal October that US stocks have endured, Tuesday marks only the sixth time this month that the benchmark index has closed in positive territory.

The Dow meanwhile notched its best day in two weeks, closing up 1.8 per cent and eking out a 0.6 per cent gain for the year.

The Nasdaq Composite closed 1.6 per cent higher. Wall Street is still eyeing its worst month in years as a sell-off that was initially triggered by fears of rising rates quickly morphed into a painful rout that rippled across global markets. Investor concerns have been exacerbated by patchy third-quarter results from a handful of bellwether industrial companies last week, including 3M and Caterpillar, as well as disappointing outlooks from Amazon and Alphabet.

Adding to the jitters have been the uncertainty surrounding the upcoming US midterm elections as well as the US’s continued trade war with China and the impact that could have on global economic growth. Materials, communication services were the day’s top gainers on the S&P 500, climbing 3.2 per cent each. Consumer discretionary and energy followed with gains of 2.7 per cent and 2.6 per cent a piece.

Utilities was the worst performing sector, rising only 0.6 per cent. The dollar also benefited from the recovery in risk appetites, with the DXY dollar index touching a 16-month high.

Bond yields rose as demand for Treasuries retreated following last week’s haven buying. Yield on the 10-year bond was 2.8 basis points higher at 3.11 per cent.

https://www.ft.com/content/0aae748c-dc7f-11e8-8f50-cbae5495d92b