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Things you need to know
- Trade Deficit raises the alarm bell
- US centric names get slammed
- Utilities and Treasuries – the safe haven play
- And the wait continues on trade
So stocks continue their slide – the usual concerns over trade, mixed macro data, slowing global growth, and tax season selling can all be cited – but toss in a ballooning negative trade deficit (while ignoring the positive Beige Book Report) and you have just another reason for some investors/traders to take money off the table…….and that is what happened yesterday……..stocks were weaker in the pre-mkt session and then became weaker as the day wore on – trading a bit lower – attempting to bounce only to be hit with another wave of selling….and that went on all day….By the end of the day the Dow gave up 133 pts or 0.52%, the S&P shed 18 pts or 0.65%, the Nasdaq gave up 70 pts or 0.93%, the Transports lost 52 pts or 0.51% while the Russell small cap/mid cap got absolutely slammed – falling 31 pts or 2%. (you can blame the Trade Deficit report for that – see below).
So what was it about the trade deficit? Well – a couple of things….first – the expectation was for a deficit of $57.9 bil – which was already up from $49.3 bil last month….now look – a rising trade deficit is a negative (or at least it is a negative when there is a trade battle taking place and concerns over global growth etc) – so at 8:30 am – yesterday the gov’t reported that the trade deficit was actually $59.8 bil – even higher than expected leaving the US with the largest monthly trade deficit since 2008 and a ‘record annual deficit’ in goods that we’ve ever had. Now this also contradicts what President Trump has been saying – which only adds fuel to far left’s argument…He has been telling us that the trade deficit is declining (good for us) – and yesterday’s report flies in the face of that statement – leaving some to suggest that he has misspoken!
Investopedia defines a Trade Deficit as:
“an economic measure of international trade in which a country’s imports exceed its exports. A trade deficit represents an outflow of domestic currency to foreign markets. It is also referred to as a negative balance of trade (BOT). Trade Deficit = Total Value of Imports – Total Value of Exports.” (So when it is negative -we are importing MORE than we are exporting)
And a consistently high trade deficits does have some long term negative consequences for an economy. It affects economic growth, economic stability and results in potential domestic job losses….thus the action in the Russell index…..a rising trade deficit suggests that US jobs will be lost to jobs abroad causing unemployment to rise – and since the Russell is an index that is US centric – not multinational – it would make sense that those stocks would get clobbered at least in the short term……and I say that because empirical evidence does contradict that theoretical supposition suggesting that unemployment can remain low even with ‘a trade deficit’ but since yesterday’s report was the highest monthly report since 2008 and a record annual high – that interpretation got lost in the noise as the mathematicians that program the algo’s panic and instruct the algo’s to SELL stocks. And SELL they did……..buyers know this and so what do they do? They bid lower (Why stand in front of a moving train?) once again leaving a void in liquidity causing prices to decline.
Ok – so sports fans where are we? Well the mkt does look like it is beginning that pull back that we have been discussing now for the week…..the S&P and Nasdaq are just about to kiss their trendlines…..2750 and 7479 respectively – a level I would like to see hold…..….The Dow continues to hold up the best while the Russell has already broken down and thru its trendline. So much of the selling is being done in the leading sectors – Energy lost 1.2% – much of that driven though by the jump in supplies that I pointed out in yesterday’s note, Healthcare – 1.34%, The small and mid-caps – lost 2%, Tech – 0.50%, Basic Materials lost 0.78%, Consumer Discretionary lost 0.5% while Consumer Staples only declined by 0.15% (why? Because you NEED the staples, you don’t need discretionary items) and the Utes? They were unchanged! Recall what I said yesterday – What are the Utes telling us? Is it a flight to safety trade?
“Utes are more of a safety play – they are staid and boring names that investors flock to that are looking for income, stability or relative safety from the storm. They are not SEXY like that FANG stocks, but then nor do they have all the drama that comes with those names….. on days when the headlines are cautious or negative – those sexy growth names tend to get clobbered, and on days when the news cycle is more positive – those same names tend to rally – Utes – don’t react like that at all and tend to be more methodical in their action – action driven by investors looking for safety – so the fact that the ‘Utes’ are now breaking out to new HIGHS is something to keep your eyes on.”
And more flight to safety – 10 yr. treasuries rose yesterday causing yields to fall – and this just suggests that some investors are getting more cautious as the turbulence increases. And the VIX? That surged by another 6.7% yesterday as the selling pressure increased….this now puts ‘the FEAR index’ right at resistance and if we get more selling today – expect the VIX to push up and thru which will only turn the temperature up on stocks.
This morning US futs are down again – currently off by 6 pts at 2767…..just about to smash into support at 2750…this is KEY today…We want to see the mkt hold here – because if it doesn’t then a swift move back to the mid 2600’s is in sight. I suspect that if the action gets antsy – we can expect someone from the WH to tell us how the deal is almost complete how we are ‘on the cusp’ of a new chapter in trade history.
Eco data today includes: Challenger Job Cuts, Init Jobless Claims – exp of 225k, Cont Claims exp of 1.77 mil, Unit labor costs – exp of +1.7% (which is high suggesting building inflationary pressures – which will ignite that whole FED policy argument again).
Global mkts all under pressure as we wait and wait for more trade news….In Europe the ECB (European Central Bank) is set to announce any monetary policy or rate changes – none expected. While the Eurozone 4th qtr GDP came in at +0.9% up from 0.6% in the 3rd qtr. BREXIT remains on the front burner ahead of next weeks critical UK Parliamentary vote – with only 22 days until D-Day – the pressure is on…..FTSE -0.44%, CAC 40 – 0.41%, DAX – 0.47%, EUROSTOXX – 0.31%, SPAIN +0.16% and ITALY – 0.31%.
Take good care.
Shrimp Scampi –
So I completely forgot that yesterday was Ash Wednesday (look I write this at 4:30 am) – the beginning of the Lenten season for Catholics around the world and as such – we were NOT supposed to eat meat and I gave you Flank Steak! Oh, boy – am I in trouble….So today I am giving you what I should have given you – a fish dish –
This takes all of 12 mins to prepare and serve….an easy dish that appears harder than it is…..
You need only a couple of things….1 lb of large cleaned, deveined shrimp, butter, olive oil, garlic, lemon, white wine, chopped parsley, s&p….and a lb of linguine…..
Bring a pot of salted water to a rolling boil and add linguine…..cook for about 8 mins or until aldente….
In a sauté pan – melt butter and add a splash of olive oil, add crushed/sliced garlic……and sauté….keep heat on med so that you do not burn the butter or garlic…..add the juice of one lemon, complement with some white wine…about ¼ cup…in pan – and a wine glass full for you – turn heat up to high….next add shrimp, s&p and sauté quickly until nice and pink on both sides…no more than 5 mins……strain pasta – reserving a mugful of water – add pasta to sauté pan – mix and serve…..You may need to add back a bit of the pasta water to keep moist -as the pasta sucks up the juice…. Serve in warmed bowls with fresh grated cheese at the table.