WASHINGTON. As we noted in Wednesday’s article, the market has been a lot of fun for the bulls lately. But we noted the party couldn’t go on for ever, as much as the bulls might wish it so. Today, Thursday, we’re getting at least some payback. Futures indicated another great day for the bulls was at hand. But once the market actually opened, stocks dropped like a rock. The government’s pending budget bill finale and Chinese intransigence in bilateral trade negotiations are blamed. But December retail sales numbers didn’t help.
What toppled those optimistic Thursday futures?
Thursday pre-market futures had been riding on investors’ continuing cockeyed optimism. That was encouraged earlier this week by the possibility of a compromise on the Trump Wall. Adding to the rally fuel: the notion we were getting close to a great China trade deal.
Unfortunately, these twin theses got toppled Thursday morning, not long after opening bell. At the moment, it looks like investors are buying into the following political bullet points.
- President Trump will probably sign the incoming budget bill when Congress actually has one. But he’ll do it grousing all the way. After that’s said and done, he’ll pursue additional funding for the Wall to add to the paltry funding for border protection that’s in the current bill. More than likely, his actions will be challenged by Democrats and the courts, continuing the game of stall-ball that we’ve witnessed since Trump was inaugurated in 2017.
- While we’ve made some progress on the China trade front, the Chinese apparently are still stoutly resisting signing any agreement that prevents them from stealing every last one of our technical and industrial trade secrets. This, in fact, is the cornerstone of the tariff war. But the stubborn Chi-coms have no intention of ceasing and desisting on their 24/7 Genghis Khan-style raid on every last one of our tech and industrial secrets. Unbelievable, but that’s Communism and Chinese intransigence for you.
About that Chinese intransigence, with regard to its theft of Western technologies and secrets
ZeroHedge elaborates on this point. (Following typeface choices via ZeroHedge.)
“Trade talks remain deadlocked as Beijing refuses to eliminate coerced technology transfers or government subsidies to Chinese companies.
“During the negotiations this week that were in their fourth day Thursday, U.S. and Chinese officials have remained deadlocked on a number of issues underlying the current trade dispute, according to people with knowledge of the matter. These include Washington’s complaints that China pressures American firms to share technology and uses industrial policies to favor domestic companies at the expense of U.S. competitors.
“Having denied those allegations, Chinese officials instead are focusing on ways to boost U.S. exports to China. For instance, China’s top economic-planning agency is proposing to increase U.S. semiconductor sales to China to $200 billion over six years, said U.S. companies briefed on the plan. The sum is about a fivefold increase over current exports.”
Commies don’t negotiate fairly, and violate agreements anyway
As we should have learned from the Vietnam War era, Commies are always thrilled to negotiate. But they rarely compromise. And they cheat on any treaty or agreement before the ink is dry. Like their old style Communist predicessors, the current Chinese regime regards Western capitalists much like Islamic terrorists regard infidels: heathens to be plundered and then eliminated. Hence, the current, highly predictable Chinese intransigence on the forced sharing of our technology. They simply don’t intend to budge. Or if they do, they’ll fudge.
Lousy retail sales figures don’t help
Also bugging markets this morning were reports of lousy December retail sales, as CNBC duly noted.
“Stocks fell on Thursday as the release of much weaker-than-expected retail sales data offset optimism around ongoing trade talks.
“The Dow Jones Industrial Average dropped 200 points, led by losses in Coca-Cola. The S&P 500 slid 0.7 percent as the consumer staples and discretionary sectors lagged. The Nasdaq Composite declined 0.5 percent.
“Retail sales fell 1.2 percent in December, marking their biggest monthly drop since September 2009, according to The Commerce Department. The department also said retail sales fell 0.9 percent in December when excluding gasoline station sales.
Charts bear out the awful retail sales numbers
“‘This number was terrible,’ said Peter Boockvar, chief investment officer at Bleakley Advisory Group, in a note. ‘The US consumer is holding the global economy on its shoulders. After seeing today’s data, we better hope it was a one month outlier and that the rebound in stocks in January and month to date will revive consumer spending.’”
ZeroHedge proclaimed much of the same, providing a nasty-looking chart (below) to back up the message.
“Just when you thought it was safe to get back in the water – reality takes two big bites out of your paddleboard.
“…enough said about that – sparking an initial leg lower in stocks.
Add the weird budget bill (that shortchanges the Trump Wall) and you have red ink on Wall Street
As of roughly 11:15 a.m. ET, all three major averages continue to flounder on the negative side as retail sales, the madly morphing budget bill, the latest retail sales figures and word of continuing Chinese intransigence on the trade front sank in.
The Dow and the broader-based S&P 500 are off roughly half a percent at the moment. The tech-heavy NASDAQ looks somewhat healthier, but it’s still off 0.15 percent as we write today’s article.
Rebalancing our portfolios
Rebalancing our own portfolios, we’ve decided over the last couple of weeks to put some of our relatively idle cash to use. It’s a bit of a gamble, including the constant headline risk. But with a preferred stock-heavy mix right now, we though it best to diversify at least a little.
We’ve added, share by share, to our fairly large positions in Schwab’s Growth Stock ETF (trading symbol: SCHG) and to Invesco’s Equal Weight S&P 500 Tech Sector ETF (RYT). We can afford to do this because both ETFs trade without commission if you have your accounts at Schwab. But most other discount brokerages have similar deals, allowing for minute cost averaging over time, which we like.
We also continue to add to our position in the Alps Sector Dividend Dogs ETF (SDOG). The approach of this interesting ETF builds on the Dogs of the Dow Theory we discussed here around the turn of the year. We’ll likely slow our purchases here soon, since the various Dogs theories theorize that you need to climb into these stocks early in the year for the investing magic to occur. We shall see.
Adding some oil to the portfolios, hoping AOC forgives us
Finally, we picked up a limited number of shares in two foreign oil giants. First we started a position in French oil giant Total (pronounced “toe-TALL,” symbol TOT). Next, we picked up a few shares of recovering UK oil giant British Petroleum (BP). The latter is a bit of a risk, given the wobbly nature of Brexit negotiations, which have less than a month to go. But we may average down if UK stocks sink due to a bad Brexit outcome.
That’s it for today. Tomorrow could get really nasty, for all the reasons we cited above. After all, that anti-Wall budget bill still falls short of a done deal. But we’ve strapped on our seatbelts for the long weekend, as President’s Day (Monday) is also a Wall Street trading holiday.
— Headline image: Cartoon by Branco. Reproduced with permission and by arrangement with Legal Insurrection.