Posted September 30, 2019

China Trade Continues to Move Markets

September has traditionally been the most difficult month of the year for stocks, but we got off to a good start following the Labor Day weekend. Despite all the noise and political posturing in Washington, it continued to be China trade news that moved the markets. House Democrats decided the best chance of getting Trump out of office was to impeach him, so they began a formal impeachment inquiry late in the month. The market responded with a yawn, because even if the House were to vote for impeachment, it would take a 2/3rd majority in the Republican controlled Senate to remove him from office, something that seems very unlikely at this juncture. Oil prices and interest rates stabilized during the month and the S&P 500 ended with a gain of 1.7% and is now up 18.8% for the year.

The holiday shortened first week of the month was highlighted by China news. First, the extradition bill that started the Hong Kong protest was being withdrawn by the Chinese government, followed by news that high level trade talks with China would resume in Washington in mid-October. The market had a good tone and the S&P 500 closed the week with a solid 1.8% gain. The rally continued into the second week of the month with news President Trump agreed to delay new tariffs on China at least until mid-October. The S&P 500 got within a few points of its all-time high and the Dow Industrial average registered its first 8-day winning streak in a year. At the end of the week the S&P 500 had gained another .9%. We began the third week with news a drone attack had disabled 50% of Saudi Arabia’s oil production, sending oil prices to their biggest one day jump in history. Spiking oil prices raised concerns about global growth and sent the markets lower. As expected, the Fed did lower interest rates by 25 basis points but were unclear about future action. By the end of the week oil prices had stabilized and the S&P 500 had lost .5%. Last week was the worst this month, led by a sell off on Friday after Bloomberg reported the White House was considering restricting U.S. investment in China and that sent the market to a 1% loss for the week. Today the White House trade representative said the Bloomberg report was “grossly inaccurate” and “fake news” which helped the market end the month higher.

October has a bad reputation, as it has been the home of most of the major market crashes and tends to be a month in which volatility increases. However, the month has closed higher 60% of the time and has an average return of +.5%. Over the last 10 years the month has been one of the better months of the year, with an average gain of 2%. The ongoing attempt to remove Trump from office is likely to dominate the news, but we believe it will continue to be China trade that moves the markets. Both sides want and need an agreement and the market has stayed near record highs on the belief one will be worked out. If you believe there will ultimately be an agreement, and we do, buying tradeable dips is the strategy to employ.

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