OPTIMISM OVER POTENTIAL TRADE DEAL

Stocks opened sharply higher this morning (Dow +188 pts; SPX +%). Every single week in 2019 has been positive for the US stock market. Today, tech, healthcare and communications services are leading. Only consumer staples and financials are in the red. Commodities are trading higher (except gold). WTI crude oil is up around $57.30/barrel. That’s an amazing turnaround when you consider that it traded down to $42 on Christmas Eve. Once again, Treasury bonds and stocks are moving in tandem. The iShares 20+ Year Treasury Bond Fund (TLT) is up .7% in early trading. The 10-year Treasury yield is back down around 2.65%. Following extremely high volatility late last year, interest rates have settled down at a low level along with low volatility.

Bloomberg says US-China trade talks have come to a “pivotal point.” This afternoon, President Trump will meet with China’s lead negotiator in Washington. Both side are trying to gauge whether some kind of agreement can be reached before the self-imposed deadline of March 1st. They may simply decide to extend the deadline and freeze the scheduled increase in trade tariffs. Certainly the stock market’s price action over the last month suggests the smart money expects some kind of positive outcome.

Overseas economic news has been somewhat disappointing this week. Eurozone manufacturing activity actually contracted this month. And Citigroup’s European Economic Surprise Index has fallen deeply into negative territory. German economic growth fell to less than 1% from year-ago levels in the fourth quarter. Today, we learned that IFO’s German Manufacturing Business Expectations fell to a 6-year low. Most economists don’t believe the Eurozone is falling into economic recession, but certainly conditions aren’t healthy.

Kraft Heinz (KHC) posted disappointing quarterly results and the stock is down 27% this morning. It turns out that profits have been shrinking over the past six quarters, and sales aren’t growing, either. Management wrote-down the value of some prominent food brands (Kraft, Oscar Mayer) by $15.4bil. It does appear that the traditional processed food business is in secular decline. This is, of course, a Warren Buffett name, and investors are wondering if he will lose patience.


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