Bill Schmick | @TheMarket: Markets recapture year's highs
There was cause to celebrate this week. The S&P 500 Index finally regained all the losses incurred since the onset of the coronavirus pandemic, and then some. That, coupled with the weekly unemployment news, also cheered investors.
For the first time since March, job losses were less than 1 million per week, according to the Bureau of Labor Statistics. But, being "less bad" is not the same as being out of the woods. That will take longer.
How long? As long as it takes to develop a vaccine that will rein in COVID-19.
Personally, I like to think that the "V" in V-shaped recovery now stands for "vaccine."
Russia claims to have developed one such vaccine, which Vladimir Putin announced earlier in the week. Unfortunately, not a lot of details were made available, so, investors have decided to take a wait-and-see attitude toward Russia's supposed breakthrough. In the meantime, we have this Saturday's virtual meeting between the U.S. and China's trade negotiators to deal with.
The U.S. chief trade negotiator, Robert Lighthizer, and Vice Premier Liu He will review the progress of the Phase One trade agreement inked in February. A lot has happened since then, and it is anyone's guess what the outcome will mean for both countries.
Sure to be high on the agenda for Chinese negotiators will be the U.S. presidential executive orders that TikTok vacate the American social media landscape (or be sold to a U.S. company by next month). The same fate might await WeChat, another successful Chinese social app. But, WeChat, owned by Shenzen-based Tencent, is the real sore spot for China and its 1 billion monthly users.
The majority of WeChat users reside inside China. It is a messaging app that combines the services of apps such as Facebook, Instagram and Uber. Users can play games, pay bills, send money, read news stories, chat, swap photos and send voicemails. The app has become an extremely important app for Chinese immigrants, students and visitors who want to communicate with their friends and families back in China.
WeChat also assists the Chinese government in keeping tabs on the overseas Chinese population. It has amassed the personal information of their population and can use the app to threaten, intimidate and even silence dissidents. Secretary of State Mike Pompeo, warns that the Chinese threat might be worse than that of a cold war, and says that President Donald Trump's executive orders are broader than just TikTok and WeChat.
China, while threatening to retaliate against these U.S. moves, has yet to show its hand. If the Chinese so choose, they could make it difficult for our companies with a large presence in their country, especially in the technology area. Apple or Google, for example, could be a perfect target in this escalating tit-for-tat between the two nations. They could make it more difficult for Apple to sell its products, or even be booted out of the country altogether.
If so, it sure isn't reflected in Apple's stock price, or the level of Nasdaq overall. That might reflect investors' lack of concern over this recent trade spat, dismissing it as mostly election rhetoric at its worst. The Chinese know that elections are just months away and boosting their purchases of agricultural products like soybeans now might convince the U.S. to step back from its actions in the technology area.
As it has done all year, the Nasdaq continues to lead the markets higher. However, we have seen some off-again, on-again rotation into more cyclical areas of the stock market. This "catch-up" trade, where investors search for stocks that are still lagging the overall gains in the market, could also indicate that the economy might be strengthening somewhat.
The lack of a second stimulus deal could provide a headwind for the markets. I think the nation's unemployed can get by for another three to four weeks on the savings they accumulated from the stimulus bill. But, the markets still believe a deal will be done, possibly in September; let's hope that is the case.
In the meantime, we are midway through August, which is usually a volatile month, as is September, and then we have the elections, so I have been expecting a hiccup or two in the markets going forward. I haven't changed that view, but I do want readers to be prepared for that possibility.
Bill Schmick is registered as an investment adviser representative of Onota Partners Inc. in the Berkshires. He can be reached at 413-347-2401, or e-mail him at email@example.com.
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