Broker Check

Surprise Surprise?

December 16, 2019

Last Thursday the US and China finally reached a tentative Phase 1 (assuming of 2) trade agreement with China pending signatures. Over the closing 48 hours of last weeks trading, markets were thrown into volatile advances hinging on what the latest headline was on trade.  Some of these headlines made their way into the media by the President himself tweeting in all capital letters ‘VERY CLOSE’ before a leak was released by a Wallstreet Journal contributor stating that an agreement was reached.  While the news was chaotic it seems that, by evidence of Monday mornings market direction, some of the dust has settled.

The tariffs that were set to start on December 15th were called off and a few other key issues began to head towards a resolution.  China has agreed to increase agricultural purchases and step up their intellectual property violation efforts.  The US has agreed to split the current tariffs on 160 Billion in Chinese goods effectively lowering them by 50%. 

Markets are digesting the information in a relatively positive fashion while there is still some uncertainty on whether this deal is the ‘big deal’ that the President has been promising, whether a Phase 2 part of the deal will actually ever take place, and if any of this Phase 1 deal actually justifies higher market prices on stocks. Considering the chaotic nature of it all, we would remain cautiously optimistic for 2020 with a focus on the strength of the US economy being the foundation that should continue the strong market we have seen in 2019. While pullbacks may occur at different intervals hinging on different news bits, lately every pullback has been an opportunity for the courageous to pick up solid fundamental buys.  

Before the next pullback, re-allocating away from stocks that have shown an over momentum to the upside would probably be wise as we know that over a meaningful period of time, these trends self correct towards more of the average.  Regardless of a Phase 1 deal the S & P 500 is overbought on the Relative Strength Index’s weekly trend.  We we tend to lean more towards a profit taking stance than adding stocks that quickly moved higher on the Phase 1 announcement. Trying to step in front of a mack truck is always a higher risk strategy, and as we head towards the year end we would feel more comfortable exercising contentment of the gains we have seen in 2019 instead of greedily chasing excess returns.