Experts Worry That The Tariff Fear They've Been Preaching Will Prove Incorrect

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Posted: Jan 24, 2019 11:07 AM
Experts Worry That The Tariff Fear They've Been Preaching Will Prove Incorrect

Well, headlines that followed the market action yesterday point either to massive confusion, or massive efforts to nudge the market and investor sentiment. Trade war fears have been put on the shelf this week to focus on another reason for the market going down even when it goes up. It’s beyond frustrating for me because there are times when market moves are simply more buyers than sellers or more sellers than buyers.

Unfortunately, these days, market observers see the market filtered through a prism of dislike for the occupant of the White House. Many experts are worried the economic orthodoxy they have preached, along with the fear they sold on tariffs and other hardball tactics, may prove to be incorrect. Their knee-jerk prediction of failure has already exposed them as elites that really care only for bottom line profits.

It’s funny that they mocked Alexandria Ocasio-Cortez; and yet, they ridiculed the North American Free Trade Agreement (NAFTA) replacement deal because it puts more jobs with higher wages into the United States. Moreover, they’ve made it abundantly clear that it’s about cheap labor, and there are no questions asked about how labor gets so cheap in the first place.

Still, these are the experts that operate televisions channels and shows, and they get called upon to express thoughts on the stock market. For them, the greatest risk always revolves around a White House policy designed to get Americans better deals. Furthermore, it’s more about losing face than losing power. 

  • The masses don’t believe that manufacturing jobs will never come back after more than 400,000 have been created in the past two years.
  • The masses don’t believe their wages can no longer outgrow the rate of inflation because they are stuck these days.
  • The masses no longer believe they are stuck on the sidelines because of mistakes made earlier in life because they are not gainfully employed.

Of course, the powers that be always have the luxury to wait and spend lots of money to sway opinion in the future. However, they must first destroy this newfound independence streak sparked during the election campaign, fanned with prosperity returning to Main Street.

The game plan now is to blame anything negative about the fight itself, so we never break or cheer the thought of rebelling against the economic system that hides behind the notion of “free markets” when it’s anything but because of cronyism, favoritism, and elitism.

We have the best economic system in the world, but it can get better, smarter and more honest if we invite more Americans into the mix rather than allow China and others to steal the sweat of our brow and call it a comparative advantage.

Meanwhile, be careful not to make mistakes based on “flawed” reporting because it might not actually be flawed. Yesterday’s Headlines:

  • Dow +300 points despite shutdown
  • Dow -90 points because of shutdown
  • Dow +177 points despite shutdown

So many people have the answers to problems that have been built up for decades. I say let’s see how the tactics work.  I feel like the nation, and consequently, the stock market, is on the cusp of winning.

After the Close

There were lots of earnings after the closing bell, and most beat the Street, or at least, the whisper numbers. Semiconductor and software stocks are making big initial moves higher.

Texas Instruments (TXN), Lam Research (LRCX), Xilinx (XLNX), Aspen Technology (AZPN), and Teradyne (TER) could put a spark into the chip sector this morning. The Philly Semiconductor Index broke above its 50-day moving average last week and has held, which is always a potential buy signal. Nonetheless, the trend of lower highs must be reversed, and that means resistance begins at 167 through 173. 

SOXX

Portfolio Approach

We closed one position yesterday, so there is officially more cash to work with, and today might be the day to put some to work.  If you are not a current subscriber to our Hotline service, call your account representative, or click here to get started today. 

Communication Services

Consumer Discretionary

Consumer Staples

2

3

1

Energy

Financials

Healthcare

1

1

1

Industrial

Materials

Real Estate

3

4

0

Technology

Utilities

Cash

1

0

3

 

Earnings continue to pour in, including results from Ford.  The stock would not lead the market, but it gives incredible insights to the state of the global economy and why the company should be focused on bringing more operations to America.

The company earned $2.0 billion in North America before interest and taxes, but it lost hundreds of millions of dollars all over the world.  Business 101 suggest they should manufacture where their business is growing and where they are profitable.

4Q18 Financial Trends

Wholesale Units

Revenue

EBIT

Total

1,474,000

$38.7 billion

$1.1 billion

North America

738,000

$25.8 billion

$2.0 billion

South America

89,000

$1.2 billion

-$199 million

Europe &Africa

361,000

$7.4 billion

-199 million

Asia – Pacific

254,000

$3.6 billion

-$381 million

 

There are pressing issues for the company, including lost market share in all geographic regions.

4Q Market Share

2018

2017

Total

5.9%

6.3%

North America

12.8%

13.4%

South America

7.6%

8.3%

Europe &Africa

7.3%

8.3%

Asia – Pacific

2.2%

2.5%

 

On a macro level, Wilbur Ross went on television and said the United States and China are “miles and miles” away from a trade deal.  I get where Secretary Ross is coming from with respect to lowering expectations and establishing a realistic timeline for a deal.  

The bottom line is the administration wants a deal, and China needs a deal even more.  I continue to think the administration makes a huge mistake when going on TV to discuss these meetings, particularly on the eve of major meetings where outcomes effect the market.