Christmas came early. The administration canceled the implementation of new tariffs and delayed others, in part to make sure that American consumers would avoid any price hikes. President Trump pointed out that due to a combination of the devaluation of the yuan, China’s exporters discounting, and U.S. importers absorbing the increased cost, the delay was “just in case” higher prices seeped through to the consumer.
It’s a moot point for many key products, but tariffs are still going through on several products. Combing through the list is a daunting task. There’s still confusion about which finished products might or might not be affected.
For instance, the ‘Effective December 15, 2019’ list covers 21 pages and the first item listed: Frozen Alaskan pollock fillets, skinned, in blocks weighing over 4.5 kg, to be minced, ground or cut.
Then there’s a list that goes ‘Effective September 1, 2019,’ covers 122 pages starting with: Live purebred breeding horses.
Beyond the confusion of what gets a reprieve and what doesn’t, investors cheered, hoping it was a thaw that could perhaps get talks back on track.
The Message of the Market
Yesterday was a solid rebound for the market. However, all the majority equity indices came up short of taking out important upside resistance levels. The tech-heavy NASDAQ Composite was by far the biggest winner, while the Russell 2000 lagged as it continued to struggle. One reason the market rally stalled was the jarring images out of Hong Kong, where police and protesters clashed. Reports suggest that the Chinese army is positioning itself to quail what they are calling a terroristic uprising.
It was the right mix of winners with Technology riding the coattails of surging Apple (AAPL) shares, along with Consumer Discretionary names, led by Best Buy (BBY); the clear winner from delayed tariffs.
S&P 500 Index
Communication Services (XLC)
Consumer Discretionary (XLY)
Consumer Staples (XLP)
Health Care (XLV)
Real Estate (XLRE)
Small Business Optimism
Small Business Optimism was the first economic indicator that popped after the election of President Trump, and it continues to hold up well, coming in better than expected yesterday.
Small Business Optimism
Increase Capital Spending
Expect Real Sales Higher
Current Job Openings
Expected Credit Conditions
Now Good Time to Expand
Well it finally happened. The two- and ten-year treasury yields have inverted with the former climbing above the latter. Historically, this has been a harbinger of recessions in the past, although it also called for a lot of recessions that never happened.
Here’s a thing to know, if history is an accurate guide, then the US economy could tilt into recession in 18 months. If history is a guide, it also means after the knee jerk selling the market rebounds on average 15% before recession.
The thing is, there are so many things happening right now that were never happening before, including $16 trillion in negative global bond yields that is sending money pouring into our ten-year bond, hence pushing the yield lower.
Macy's (M) reported a disaster this morning, but as I pointed out earlier in the week it’s a flawed business and the stock is down 35% year-to-date before the open this morning.
Not sure how much it means for Macys. The department store model has been in trouble for a long time, moreover, the company admitted missteps in fashion, warm weather wear and blamed slower tourism - which is also a strong dollar story.
I'm fascinated with the statement from the CEO:
The customer has no appetite for price increases. Right now we are expecting that there won’t be price increases when next tranche (fourth) of 10% tariffs hit.
We will close a few positions to raise cash mostly so we can buy this dip while mitigating some risk. Note: the model portfolio was already at 20%, so everyone should have cash.