Market Commentary for Week Ended 9/6/2019

Market Commentary for Week Ended 9/6/2019

by David Rasmussen on Sep 6, 2019

Market Commentary for Week Ended 9/6/2019

 

The week’s market action was characterized by a refreshment of risk appetite. The S&P 500 ended the week up about 2% after a strong weekly gain of 2.6% last week.  It has been a choppy market since the early August decline of 8% in four trading days.   Here is a chart of the recent S&P 500 price history:

As you can see from 8/5 – 9/5 the S&P 500 was contained between 2840 and 2940, a 100 point or 3.5% range.   The catalyst for the breakout on September 5th was news that China and the US plan to hold high level trade talks in early October. 

Here is where we are at in the trade talks from both sides’ perspective:

  • On 5/1/2019 the US and China came to an impasse on trade negotiations.  China decided that they weren’t willing to change Chinese law relating to intellectual property rights and the uneven treatment of foreign companies operating in China.
  • From China’s perspective: China would like us to remove restrictions on Huawei, the world’s largest telecommunications equipment provider.  They would like tariffs removed and they don’t want to have to buy more of our products, as stipulated by the US.
  • From the US’s perspective: Historically, forced technology transfer in China has basically been a biproduct of doing business in China.  Respect and restrictions for intellectual property theft are not part of the Chinese ethos.  The US would like Chinese law changed relating to intellectual property.  Also, it is not controversial to say that China has been manipulating their currency in order to have an unfair advantage in international trade. 

There are not indications at this point that these issues will be resolved in the near future, but the market seemed to be looking for an excuse to breakout.

Economic Data Recap

The two notable data points this week:

  1. The ISM’s Non-Manufacturing Index: came in much better than expected at a reading of 56.4.  A reading above 50 indicates expansion in the service sector.  New orders stood out in the report jumping more than 6%. 
  2. The Monthly Jobs Report: The report showed 130K jobs created in August.  This is slightly below the expectations of between 150k – 180k.  The market is expected the Fed to cut rates by a quarter point at their next meeting in two weeks and this report will likely not sway that decision.  The market took the report in stride.  Here are the details (source: www.econoday.com)