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The averages RIPPED higher as the good news continues to hit the tape. Recall that over the weekend, the Minister of Commerce in China made mention that the two sides were making “substantial progress” and then on the Sunday morning talk shows our own Wilbur Ross reiterated that story. So they “set it up” and then the rumor yesterday was that Trump/Xi Xi were talking and that tariffs imposed in September would be rolled back IF they struck Phase 1 of the deal. Guess what? Overnight the Financial Times reported that the Trump Administration was considering “cutting tariffs of 15% on about $111 billion in Chinese imports imposed Sep. 1.” And this morning, we wake up and find that today’s WSJ runs with this headline: “US, China Consider Rolling Back Tariffs as Part of Initial Trade Deal.”
A senior WH official said after last nights close that “if there’s deal, removing tariffs would be part of it.” That does make sense as both sides need to compromise to move forward. Now to be clear, this wasn’t really news, as that had been part of the story one month ago when they reached “in principle” Phase One of the deal. What made yesterday (and apparently today) was the fact that both sides are confirming it which makes it feel “real.” And so it goes, US indexes surged higher yesterday and this morning they continue to be in rally mode. US futures are suggesting another move to create another string of “new highs.” Dow futures are up 70 points, S&Ps are up 7 points, the Nasdaq is ahead by 25 points and the Russell is tacking on 5 points. The Dow is now in the same company as the S&P and the Nasdaq, as all three indexes are now in NEW HIGH territory. What would really make this sweet, is if the Dow Transports also confirmed this latest move and notched a new high as well. For that to happen, the Transports have to hit and pierce 11,148.36. It closed last night at 10,982.15 up 243 points or 2.27%, a very bullish move. In fact, the transports were so excited, they gapped UP 77 points on the opening and closed just 3 points off the day’s high. Now I say this, because if you are a true Dow theorist, then you realize that in order for this latest UP move to continue, both the Industrials and the Transports need to confirm that by making and holding new highs.
Investopedia defines the theory:
“The Dow theory is a theory that says the market is in an upward trend if one of its averages (industrial or transportation) advances above a previous important high and is accompanied or followed by a similar advance in the other average. For example, if the Dow Jones Industrial Average (DJIA) climbs to an intermediate high, the Dow Jones Transportation Average (DJTA) is expected to follow suit within a reasonable period of time.’
Within a “reasonable period of time” (which leaves that open to interpretation because what is the definition of reasonable?) And just FYI, the Transports are up 21% this year vs. the Industrials that are up 17%. This suggests that investors and the markets do NOT believe that we are close to anything resembling a recession. The inversion that happened in August is only a memory. As the spread between the twos and tens is now about 22 bps and going higher as money comes out of the Treasury market and finds its way into the stock market, forcing Treasury prices to fall and yields to rise.
And as earnings season winds down, the focus returns to trade. Overnight, Japan, which was closed yesterday for a holiday, made up for it today by surging to and teasing their 2019 highs as word that a partial trade deal permeates the global mindset. Shares of Softbank (9984 JT on your Bloomberg terminal) — which are due to report tomorrow — are expected to report weak results due to the “collapse of a once high flying bet.” It has clogged the newswires with all kinds of stories from forced asset sales to better forward guidance.
The stock soared by 2.4% (it is down more than 35% this year) after Softbank Corp CEO Ken Miyauchi said that WeWork’s Japanese business can become profitable “in the near future.” What would you expect him to say after Softbank Group run by Masayoshi Son bailed out WeWork’s former CEO Adam Neumann with that spectacular “golden parachute.” It’s sure to become a Harvard business school case study: Investment Banking 101 – Alice in Wonderland – How to pull the wool over the private equity guys and then go home with a multi-billion dollar deal for 5 years. The answer is simple no need to overthink it.
Here is the thesis: SoftBank and JPM were in way over their heads, committing billions of dollars (Softbank) to an idea that is nothing more than office rental space (hardly disruptive) and writing multi-million dollar loans (JPM) against “UNICORN stock” that those Bozos valued at some $48 billion and was basically a ponzi scheme, or piggy bank that supported a lifestyle like “the rich and famous” to a clown that apparently had everyone fooled. I mean, you can’t make this up! (They had to bail him out, otherwise they risked destruction of their own balance sheets). It’s beginning to feel a bit like the dot com bubble and crash, just sayin’. And for those of us who lived that chapter, you know what I mean…
Elsewhere in Asia, the Caixin/Markit Services PMI in China slipped to 51.1 (still expansionary) but the lowest reading since February. That did nothing to stall any advances.
Japan +1.7%, Hong Kong +0.49%, China +0.62% and the ASX + 0.15%.
In Europe, as their markets open, investors are a bit more cautious. The most recent rally, driven by more stimulus delivered by the ECB, has caused all of those market centers to make new highs as well. Germany, France, even Italy, and Greece are testing the upper limits along with the whole Eurozone/Eurostoxx index. It feels like they are taking a bit of a breather this morning as they digest the latest trade deal news. In the UK, the British Retail Consortium (BRC) reported that consumer spending was quite strong in October in a year/year comparison while noting that growth over the 12-month period fell to a new low. How’s that for a positive and a negative storyline in the same sentence? Yesterday’s IHS/Markit survey showed that the Eurozone manufacturing sector continued to contract (not bulllish), yet European markets are hitting new highs.
FTSE +0.34%, CAC 40 +0.20%, DAX +0.14%, EUROSTOXX + 0.19%, SPAIN –0.19% and ITALY +0.18%.
As noted above, US futures are gaining ground again is what feels like a push to S&P 3100 before the fun stops. Do you realize that if we pierce 3100 we will have been in eight century marks this year alone, from 2448 in January to 3100 today? That would represent a 27% move from low to high. All of this is happening when every analysts/strategist and economist kept telling us about the global slowdown that was sure to put an end to the bull market. Now, you do have to ask: where would we be IF the FED, the ECB, The BoJ, the PBoC, and the BoE did nothing and held the fort at the rates seen last January? We would NOT be at S&P 3100. I’ll tell you that!
Again, as I noted last week, once we broke out of the S&P at 3025, there was nothing to hold us back and to find where the next level of resistance would be. You needed to draw a trend line. And when you did, I pointed out that that trend line suggested we wouldn’t hit resistance until 3125! Let’s see what happens when we kiss 3100. Will that cause another surge up and through or will it cause some to take money off the table? And it’s only Tuesday!
Take good care.
Seared Scallops Bathed in Vermouth
If you like scallops – you will like this dish…simple elegance.
You will need: olive oil, garlic, cauliflower heads, scallops, butter, shallots, dry vermouth, s&p, and fresh basil.
Start by heating up some olive oil in a sauté pan. Add some sliced garlic – not too much – now add the cauliflower and cook until slightly browned. Maybe 5 mins or so. Remove and set aside.
Add a bit more olive oil to sauté pan. Heat. When nice and hot, add the scallops – careful not to crowd – sear for about 2 or 3 mins. Flip over and cook for about 2 min more. Remove and set aside.
Now - add butter and the sliced shallots – cook until soft and the butter begins to brown. Not long. Add about ½ cups of dry vermouth and scrap the bottom of the pan. Add back the cauliflower, reduce heat to med, and cover and cook for about 5 mins or until the cauliflower is tender. Add the scallops to reheat only. No more than 1 or 2 mins. Serve immediately on a warmed plate – garnished with fresh basil. Enjoy a chilled dry white wine, nothing fruity…