RELIEF RALLY

Stocks opened higher today on some ever-so-slightly encouraging trade headlines. The Dow is currently up 390 points and the SPX is up 1.5%. The best performing sectors—financials and tech—are up over 2% in early trading. Real estate and utilities are in the red. The VIX Index sank back to 17 and somehow traders are in the mood to buy stocks, saying we’re “oversold.” European markets closed up by about .5% to 1%. Commodities are mostly trading higher, save gold. WTI crude oil fell at the open but recovered to $53.30/barrel. The bond market is broadly lower today. The 10-year Treasury note yield rebounded to 2.14% this morning after falling to a 20-month low. By the way, 2019’s downshift in bond rates and inflation have stoked speculation that the Federal Reserve will be cutting its policy short-term interest rate before long. Fed officials are obviously noncommittal but Chair Jerome Powell said in a speech today that the Fed will “act as appropriate to sustain the expansion.” That’s exactly what investors want to hear.

The escalating trade war is adding a layer of uncertainty to investing that caused famed hedge fund manager Stanley Druckenmiller to sell stocks and buy Treasury bonds. Incredibly, he says that was done “not because I’m trying to make money, I just don’t want to play in this environment.” He is concerned that the trade war is damaging the US economy and blames the president’s “belligerent, sort of verbose pressure he’s putting” on our trade partners. Mr. Druckenmiller is obviously worried about political risk, and believes Mr. Trump will lose the next election. But the worst case scenario for investors is a win by “one of the two, three crazies” on the left wing of the Democratic party. That would tank the market.

Byron Wien of Blackstone says this trade war is only costing the US about .5% of GDP but it could potentially cost China 2.5% to 5% of its GDP. So China is more vulnerable if the trade war drags on. He believes that a deal will eventually get done, but it could take much longer than anyone expected.

Famed investor Rich Bernstein notes that global growth rates are slowing, whether we’re talking about corporate earnings or economic growth. He wonders if “we may be on the down side” of the business cycle. And on top of that, “capricious policy” such as the trade war and Brexit “can shut things down.” However, he still believes that “Armageddon isn’t about to happen.” On the positive side, we don’t have “excesses in the economy,” and we don’t have huge inflationary pressures; recession doesn’t look likely. His firm’s equity holdings are being shifted somewhat defensively, and “quality” is a big selection factor.


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