May 10, 2019
Making Cents of the Markets
Be in the Know
We saw the usual topics dominate the headlines this week, kick-started by a series of unexpected presidential tweets Sunday night that overshadowed most other news. The timing of the tweets was surprising as most anticipated a resolution to the trade negotiations this week rather than the increase of tariffs. Markets gave up 2.2% over the last five days, taking a small chunk out of the YTD growth they have seen. However, they finished with some upward momentum after US Treasury Secretary Mnuchin said Friday’s talks were “constructive”. The volatility and quick turn-around in the markets is an example of why it’s important to decipher news from noise. We’re unlikely to see a drastic increase of fighting as the White House tends to focus on the stock market and doesn’t want to cause any pain. Yet, the White House knows there’s some wiggle room to rattle the saber given the rally we’ve had this year and the fact that the current dispute isn’t causing too much damage to either side yet. Deutsche Bank thinks that China isn’t likely to give in quickly since the impact to China’s economic growth is only 0.2% so the headlines will continue. Though, if the fighting does escalate, the impact would be serious for both parties and global trade overall.
While one would wonder why the US would make such a move days before a meeting that many thought was going to be the end of the trade war, it’s reported that China made heavy edits to the latest version of the agreement, apparently making comments on almost every page of the deal. Some believe that it was Trump’s recent comments surrounding interest rates (that he thinks they should be dropped to stimulate the economy further) that led the Chinese to feel that the US had a weaker hand and they could be pushed a little more. That makes the US move understandable. That said, while economic growth has yet to change direction as a result of the trade dispute or tariffs, we are seeing a decline in PMI (purchasing manager’s index) numbers since the implementation of the original taxes on steel and aluminum in early 2018. Even though the tariffs aren’t mathematically an issue relative to the combined GDP of the two countries, the negative impact on global sentiment and manufacturing suggests they are relevant. The fact that the president feels, and repeatedly claims, that China is paying these taxes directly, the truth is that most research finds that American companies and consumers are taking on most of the burden. Some Chinese manufacturers may be absorbing the costs by dropping their prices to stay competitive but for those that don’t, it ends up either being paid by the vendor/retailer or gets passed onto the consumer. For the US to believe that the tariffs are a long term source of income is also a flawed assumption.
A number of IPO’s have come to market lately, including this week’s Uber. We’re sure if they had a choice they would have preferred to come out during last week’s upward move rather than on the fifth consecutive red morning. A positive of this pullback is that no sectors remain in the overbought territory they were in last week (8 out of 10 and the S&P itself were overbought). Most sectors remain in their long-term uptrend channels even with this dip, though some are stronger than others.
We maintained our positions as the noise continued. News gets priced in quickly but we monitor all of our stocks and overall portfolio performance closely. Our strategy is to evaluate risk levels and momentum and ensure that we are comfortable with the exposure we have in the mandates given the upside/downside scenarios. No changes were required this week. While the markets and every sector are off their highs, the profit-taking we’re seeing is based on news that will likely change again soon because a deal is probable and these tariffs could be lifted before any new product even reaches American shores. We are constantly reviewing the possible scenarios and believe a substantial correction for the markets in the near term is unlikely. The Fed is on hold (and considering cutting), interest rates have a downward bias, the US job market is healthy (more job openings than workers), giving stocks a tailwind to lessen the negative trade impact.
Chart of the Week
JOLTS (job openings & labor turnover survey) – 7.5 million job openings at the end of March – 4th highest ever and substantially stronger than forecast.
Beyond the Markets
Don’t forget: this Sunday is Mother’s Day! While there are many ways to show those special women in your life how much you care, here is a list of some Mother’s Day events taking place in the Lower Mainland this Sunday, May 12:
- Spend this Mother’s Day at the VanDusen Botanical Garden and take a walk through the garden while listening to the music throughout the grounds. You can bring a picnic or stop by Truffles pop-up café in the plaza. Regular garden admissions apply.
- Head down to the IKEA in Richmond for Mother’s Day high t The celebration features sandwiches, pastries, and tea, all with a Swedish twist. Tickets can be purchased at the restaurant in the Richmond IKEA for a seating at 1:00pm or 3:00pm.
- Make a reservation for a Mother’s Day meal at The Teahouse in Stanley Park for delicious food paired with a blissful setting. Brunch will be taking place from 10:00am to 3:00pm but they are also offering a three-course dinner for those who prefer a later dining experience.
From the Pinkowski Wealth Management Team, we wish all those a happy Mother’s Day!
Listen to this week’s Making Cents of the Markets on CKNW. We gave listeners insight into the trade wars between the US and China, financial advising across generations, and the “sell in May and go away” theory. Listen here.
Click here to read our latest North Shore News article for insight into the housing market and what it means for buyer choice and affordability.