US stocks broke a multi-week winning streak, but did so with very “sleepy” daily moves. For the week ending September 20, the S&P500 gave up -0.5%, but remains +2.4% higher for the month. International markets also slipped, but likewise were controlled in their daily moves. Whereas the month of August was an alarmingly volatile period with 18 of the 22 trading days experiencing moves greater than ±1%, the S&P500 has closed up or down by less than 0.75% in each of the past 12 sessions – the longest such streak since the end of July. Such streaks appear common in 2019 when investors look uncertain about the direction of the global economic outlook.
Perhaps it’s just us, but we are struck with how surprised most clients are that the markets are very close to achieving full recovery of their all-time highs set in late-July. Maybe that’s because the media wasted no time in bringing focus to how adversely financial markets reacted to abrasive tweets (Trade + Fed) from the US President last month; or the reporting that the yield curve inverted – a somewhat technical concept that few mom & pop investors/savers understand beyond being told that it has a decent historical record of signaling economic recession. The overall mood can at best be described as sober.
The current global trade war concern first emerged 18 months ago; as recent as May it was generally believed a US/China trade deal could be negotiated. That deal on paper was reportedly 80% complete. At the same time, some trade progress occurred elsewhere (USMCA/NAFTA 2.0), but the US/China negotiations are unfinished and appear virtually collapsed. One even wonders if a US/China deal can resolve before the next US presidential election in 2020. The reality is China does not feel the same political urgency and is unlikely to back down quickly, instead they favor projecting a tough image. That means more economic pain will probably occur before meaningful talks resume. A major issue – Intellectual properties protection – is a complex subject to be resolved. In essence, it appears we are in the throes of a “New Cold War” with potential big influences on the domestic and global economic and financial outlook.