Trade giveth and trade taketh away. Stocks began the week with a rebound on positive China trade news but then erased a 350-point rally with a loss of 245 points on……you guessed it…. negative trade news. Sigh. The negative news was that if upcoming G-20 trade talks do not bear fruit then the US will hit Chinese imports with $275 billion more in tariffs. The Dow closed at 24,442 on lighter trading volume.
The gurus are mixed on what markets will do. Goldman Sachs is calling for stocks to rebound as share buybacks resume while Morgan Stanley is saying we could fall into a deeper bear market within the context of a long-term bull market due to overly optimistic earnings estimates. So far 48% of S&P 500 companies have reported and they show 22.5% earnings growth. BTS issued an update and they remain in cash but noted that while we are at a support level there is risk of more downside given concerns of slowing global economic growth. However, there is good news on that front as China seems to be making attempts at helping its middle class buy cars. Before the US China trade war began, China had a tariff on imported cars of roughly 25%. In response to the trade war, China increased its tariff on cars imported from America to 40% (including Tesla’s) while dropping it to 15% for cars imported from non-American sources. This led to confusion among Chinese buyers and a decline of car purchases for the first time in 20 years. Bloomberg reporting early Monday that China will cut its car purchase taxes in half to 5%. The news, while not official, was well received by global auto makers whose stock prices all jumped like rabbits. The news also lifted European stocks since car manufacturing is a big deal in Germany.
The Dow was also pressured by declines in two of its bigger components, Boeing and IBM. Shares of Boeing were lower after the crash of a Lion Air 737 Max jet. The jet had been put into service in August and this is the first crash of a 737 Max which is a popular seller for Boeing. It appears some investors were taking money off the table until more details about the crash are released. IBM shocked the computing world by purchasing open software computing company Red Hat for $34 billion. This is a major move by IBM to compete in the cloud computing space. The gurus were surprised by the move and initially sold IBM but generally think it is a good long-term play since IBM has steadily lost ground to Amazon, Microsoft and Google.