WASHINGTON. At Tuesday’s opening bell on Wall Street, investors found themselves dealing with two potentially positive stories. Both are making Mr. Market very happy as we approach the 10 a.m. hour. First, the White House just announced that President Trump and China’s President Xi will indeed meet at the upcoming G-20 summit. That news, according to CNBC, is “boosting hope for a U.S.-China trade deal.” And second, optimism grows that the Federal Reserve will soon announce a long hoped-for easing of U.S. interest rates.
Trump G-20 announcement gives U.S. stocks a boost
CNBC provided the current Wall Street box scores for this morning’s G-20 announcement.
“The Dow Jones Industrial Average jumped 350 points as Apple and Boeing outperformed. The S&P 500 climbed 1.3% while the Nasdaq Composite advanced 1.8%.
“Trump said in a tweet he ‘had a very good telephone conversation’ with Xi. He added: ‘We will be having an extended meeting next week at the G-20 in Japan. Our respective teams will begin talks prior to our meeting.’
“‘That put an additional boost on to the market. That’s good news,’ said Art Cashin, director of floor NYSE operations at UBS.”
Carlyle Group’s Rubenstein weighs in
Regarding the G-20, in a related bit of news, CNBC also reported some optimism on the trade front. It comes from the Washington-based Carlyle Group’s (trading symbol: CG) co-founder David Rubenstein.
“The United States and China want to resolve their trade dispute, private equity billionaire David Rubenstein predicted Tuesday . . .
“‘I do think there will be a resolution before the end of the year,’ said the co-founder and co-executive chairman of The Carlyle Group, even though talks to end the Washington-Beijing tariff war have stalled.
“‘I go to China a fair bit, and I talk to government officials there, and I obviously talk to government officials here. My view is both sides want a deal,’ Rubenstein said . . .”
We think Rubenstein is right. A deal is in the offing. But later. Much later. And likely not at the G-20.
Tuesday looks bullish, but let’s hedge our bets a bit
I’ve made a general habit of offering stock market observations and impressions in early to mid-afternoon on trading days. The reason is simple. Trying to correctly predict how things will go before the market opens at 9:30 a.m. ET lately is so unpredictable that it’s generally a waste of electronic type. Tuesday, however, could be one of the exceptions. So this morning’s bullishness seems at least reasonable on the surface.
The Dow Jones Industrial Average of 30 mega-cap stocks continues to soar Tuesday morning. This robust move brought the other major averages along with it. All three – the Dow, the S&P 500 and the NASDAQ are up over a point in what appears to be fairly heavy trading. But bulls shouldn’t get cocky.
Trump, Xi, trade deals and Dow stocks joined at the hip
The Dow, in particular, is focused on large-cap stocks that do substantial business overseas. So the Dow in particular would be ecstatic if Trump and Xi could at least cut some kind of interim trade deal at the G-20. That would take at least a bit of fear out of 2019’s thus-far erratic trading patterns.
On the other hand, these negotiations have been of the “hurry up and wait” variety. Rabidly negative news reports to the contrary, it was the Chinese government that blue-penciled the daylights out of all the concessions the U.S. thought they’d agreed to in the previous (and now dysfunctional) trade agreement. That infuriated President Trump. He cranked up the retaliation machine as is his custom. He was ready for a deal.
Democrat-Socialists, GOP RINOs and #NeverTrumpers no help to Trump in negotiating with Xi
Worse, China’s deceptive tactics smacked of an attempt to influence the 2020 elections, driving the White House even further up the wall. (Not the one on the border, BTW.) Hence, the president’s threat of even more retaliatory tariffs.
Trump actually continues to do the right thing here. Even some hyper-partisan Democrats, including Senate Minority Leader Chuck Schumer, tend to agree. The Chinese have been stealing America’s technological seed corn for years. And if it doesn’t stop, the U.S. will be well on the way to the Third World status Barack Obama so earnestly desired. As do the Chi-coms under President Xi.
Problem is, everyone’s well aware of Trump’s vulnerability in the upcoming election cycle. If Xi can hold out long enough, the Chinese government can help the do-nothing House Democrats tip this country into at least a minor recession next year. That’s something both Xi and the Democrats know could very well pick off a previously popular incumbent. (See Bush I, 1992 after the S&L crisis and a tax increase.)
In the end, David Rubenstein’s observations on a possible U.S.-China trade deal seem a bit more realistic than today’s irrational exuberance on Wall Street. Both sides are trying to squeeze each other until one of them blinks.
Political and weather-related events also weigh on Trump, Xi
The recent clashes in Hong Kong and the fast-declining business and economic climate in China due to Trump’s tariffs are causing unexpected trouble for the Xi regime.
Meanwhile, along with the disastrous flooding in the American Farm Belt, the Trump tariffs are wreaking havoc with the farm constituency. And unfortunately, that coalition strongly voted for the President in 2016.
National elections usually involve some percentage of “what have you done for me lately?” syndrome. This one is no exception. If Trump starts losing farm states or Rust Belt states, he’s likely toast. Both his campaign – and the Chinese Communist government – are well aware of this.
In other words, the pressure works both ways. It would be helpful to Trump if the House Democrats and the Senate RINOs could see fit to help both Trump and the country out a bit by passing useful legislation with regard to immigration, farm belt and disaster compensation, and the like.
But that will never happen in a legislative branch dominated by impeachment-crazed faux-Commie Democrats who can’t comprehend electoral defeat; and by #NeverTrump GOP-ers who can’t abide an effective outsider. An effective outsider who exposes them as frauds who never deliver on their on their election promises even when they hold a majority in both houses. This is a YUGE argument for term limits. But that issue is for another column.
And then, there’s the still-clueless Federal Reserve and that stubborn interest rate matter…
Meanwhile, there’s also the small matter of today’s Federal Reserve dunderheads. Even though it was the right idea from a technical standpoint, the current Fed jacked interest rates up too hard and too fast, putting the breaks on the recovery that should really have started back in 2010 but didn’t, because Obamanation. A recovery that included average working Americans and not the rich Democrat businesses and mega-rich Democrat donor class that caused the Great Recession in the first place.
Trump’s rising tide was indeed lifting all boats. So the Fed, in its infinite wisdom, dammed up the surging tide, weakening the U.S. economy just in time for the U.S.-China trade impasse to cause a bucket of trouble for the Administration in Washington that Everyone Loves to Hate.
Anyhow, with effectively zero inflation persisting, the Fed had no business forging ahead in attempting to “normalize” the high interest rate environment that arguably led to the Great Recession. So dithering around correcting that error should be a no-brainer, right?
Current Fed rate dilemma should already appear in the rearview mirror. They goofed.
Not so fast. Were the Fed to actually cut interest rates this month, that could be seen as an admission of error. And in Washington, no one in power ever makes a mistake. The correct verbiage: “Mistakes were made.” We’d be shocked if the Fed actually cut interest rates this month. But to save face but do the right thing albeit later than necessary, a July cut of 0.25-0.50 basis points would be a move in the right direction.
If the Fed fails to follow through on what the street wants within the next month or so, however, we’ll be buying a load of shares in the 2x short S&P 500 ETF (SDS). Today’s irrational exuberance could easily turn into tomorrow’s selling panic. So beware.
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