US Marches Higher - Hong Kong Falls into Bear Territory

US Stocks continue to hold their own…the Dow added 113 pts yesterday while the S&P tacked on 10, and the Nasdaq added 48 pts.  Energy, tech, consumer discretionary all leading the mkt higher….News that China will ask the WTO (World Trade Org) for permission to impose new sanctions on the US did little to rattle US investors – but it did rattle global investors and with concerns that economies in Europe and Asia are not performing as strongly as the US – there is reason for continued concern.  Look – ongoing trade talk/tariff wars, strengthening dollar, slowing global growth are taking their toll on global mkts…. while a strong US economy is causing a ‘flight to safety’ trade….

Last week I said on CNBC –  that the US continues to be the safety trade…and while some traders balked at my comment – just look at what is happening around the world. The US stock mkt is making new all-time highs…the economy hasn’t been this strong since the Ronald Reagan ignited the greatest bull mkt the world has ever seen…..and today with unemployment at historic lows, GDP nearing 4%,  interest rates (artificially) low but higher than other developed mkts, manufacturing making a resurgence, lower personal and corporate taxes and expectations for another strong qtrly earnings season – investors in the US equity space have been handsomely rewarded….

Contrast that with the fact that other mkts are nowhere near performing as the US has.

Hong Kong is 16% below where it was in 2007 and has now officially entered a bear mkt for 2018….it is down just over 20% as of yesterday…., MSCI Emerging Mkts Index is 26% below its 2008 highs, Germany is 50% higher than it was in 2007 – but nowhere near the performance that the US has had.  The FTSE is 10% higher than it was in 2007, France’s CAC 40 hit it’s all time high in 2000 and is still 23% below that peak of 6944, and the Italians are still 50% below their 2007 peak.  And the worst performer of all?  Japan – that index is 40% BELOW its 1989 peak…. (do the math – that is 29 yrs ago). 

So, let’s put it in perspective…. The US is alive and well. Earnings season begins anew in 3 weeks and expectations are for another ‘blowout’ qtr of 20% y/y earnings growth…and this contradicts what is happening around the world.  Asian and European economies are not keeping up with us and that could prove to be an issue going forward…. if we don’t fix ‘trade’.  Look – Europe is an export-oriented economy…. which means that trade is very very important to them – and until we get more clarity on trade – the concerns will continue to be a weight on the mkts.  But like everything….at some point – stock prices and valuations become attractive…the question is – Are we there yet? 

There was little to no new news overnight regarding trade – but The EU’s President – Jean Claude Juncker was jawboning – but in the end did nothing, Turkey is set to raise rates tomorrow and Eurozone industrial production fell 0.8% vs. the exp of -0.5% for July and that just signals a weaker manufacturing 3rd Qtr for them.  Investors around the world were hoping to see better eco news from the EU – but that does not seem to be the case.  Now while all of this is newsworthy it did little to move mkts…. and so, the Dollar index (DXY) is little changed, Gold is down $1, and oil is up 64 cts.  US futures are up 2 pts as the day dawns. 

Global mkts:  FTSE +0.14%, CAC 40 +0.58%, DAX +0.21%, EUROSTOXX +0.15%, SPAIN +0.05% and ITALY +0.28%.  Japan -0.27%, Hong Kong – 0.29%, China – 0.69% and ASX – 0.06%. 
 
Eco data today includes:  Mortgage applications – they fell by 1.8%, (NOT GOOD), although you can explain it away as the time of year…...And at 2 pm we will hear from the FED when they release the mins of the Beige Book. 

(The Beige Book, more formally called the Summary of Commentary on Current Economic Conditions, is a report published by the United States Federal Reserve Board eight times a year. The report is published in advance of meetings of the Federal Open Market Committee.  Each report is a gathering of "anecdotal information on current economic conditions" by each Federal Reserve Bank in its district from "Bank and Branch directors and interviews with key business contacts, economists, market experts, and others. It is called the Beige Book because its cover is colored beige.” – Wikipedia)

With the lack of anything else significant – Unless you consider the constant bashing of the President significant – the focus will remain on trade and tech and what that all means for the dollar.  Remember – the dollar is down 2.2% from the August highs…. right now, sitting on support at 95.05. (in contrast the S&P is up 3.3% during that same time) As long as it doesn’t rally significantly – then stocks should continue to hold their own as the week ends.  The S&P appears to be in the 2865/2900 trading range. 

Don’t be fooled – caution is still the buzzword – as investors bet on the outcome of trade talk and the news that China has appealed to the WTO to impose sanctions upon us.  Any negative headline does have the ability to ‘give the algo’s an excuse’ to hit the sell button – but long-term investors do not appear to be abandoning the ship at all.  Bring it on…….

O’Neil Methodology tells us that it is all systems go, leadership continues to act well.  If we see a technical deterioration in these ideas coupled with a change in mkt psyche - then we would change our view…. until then…. stay awake.   
 


Pureed Potato/Escarole Soup 

This soup is topped with fresh mozzarella, toasted pine nuts and sweet raisins…. Come on now…. how good does this sound?  Consider this as a starter dish for your Thanksgiving table. Never too early to plan. 

For this you need:  fresh mozzarella cut into chunks, pine nuts, olive oil, chopped onion, Yukon gold potatoes, peeled and coarsely grated, water (or veggie stock), fresh escarole roughly chopped, s&p, golden raisins, soaked in hot water for 5 minutes then drained.
 
In a large pot - heat oil over medium-high heat. Add onion, reduce heat to med and cook, uncovered, stirring occasionally for about 10 mins….  Next add potatoes and cook, stirring occasionally, about 5 minutes more.  Now add in the escarole and season with s&p.
 
Continue cooking, covered, stirring occasionally, until leaves are wilted and tender, about 10 minutes more; add 1 ½ cups water (or veggie stock) and bring to a simmer. Transfer contents of pan to a blender or food processor and purée until smooth; season with salt to taste.
 
When serving – add chunks of the fresh mozzarella, some toasted pine nuts and sweet raisins…. you can drizzle a bit more of the olive oil if you prefer….



Buon Appetito.
  

The market commentary is the opinion of the author and is based on decades of industry and market experience; however no guarantee is made or implied with respect to these opinions. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of O’Neil Securities, Incorporated or its affiliates.