The China Factor!

Wall Street has enjoyed a dream-like reporting season, but it’s yet to be translated into significant movement on the stock indexes. In summary for the week, the S&P 500 ended flat, with negligible gains of 0.03%. The Dow Jones rose 0.10% alone, the NASDAQ shedding 0.35%. Going into the weekend – despite a spate of solid reports from Microsoft (MSFT), Honeywell (HON), and even, General Electric (GE), the market again turned its head to the trade war.

On the positive side, last week we saw a positive response to the earnings releases of the reporting banks, and when push came to shove, the week numbers released by Netflix (NFLX) were less of a disaster than anticipated. On the day the stock responded to its number, it fell 14% in no time, but succeeded in recovering significantly, ending the day down by only 5%. The earnings season has been good, but has not succeeded in creating enough positive sentiment to sweep up the market as a whole.

The big news in the ongoing battle is that China has depreciated its currency, the Yuan, bringing down its currency to the lowest level in over a year. Only this past Thursday Trump stated that the Chinese currency was “dropping like a rock,” and that the strength of the dollar “puts us at a disadvantage.”

The logic behind the Chinese move was clear. The devaluation of the Chinese currency will heighten the attractiveness of Chinese export commodities by lowering their prices, the Yuan being weaker. Even if levies are imposed on Chinese imports, that being the case, they’ll still be cheaper than foreign counterparts.

In Europe, concerns are growing about the imposition of import taxes on cars. President Trump said in an interview to CNBC that he’s ready to impose further levies on Chinese goods in the amount of $500 billion.

For months, the market’s response to the trade war has been relatively moderate. From time to time concerns have been piqued, but along the way the undercurrent has been that a constructive solution will be found. Now it’s becoming more and more clear that the solution will come at a later point, rather than sooner, which has caused inconsistent market movement.

The market of late has demonstrated an extreme lack of consistency, the Dow Jones outperforming one day in light of bank strength, only to see the small-caps take the lead next day, for no apparent reason.

The earnings season has been good and the trade war hasn’t yet succeeded to take a serious bite out of stocks, but the formidable challenge now is price movement that’s lacked clear directionality, momentum being mixes. Traders are complaining vocally that deals are not developing like they would expect, and that there’s little continuity.

In summary, market movement has been mixed. The indexes are still holding their own, and the overall trend is still positive, but the upward movement is still very marginalized. And it feels random to boot.

This coming week, the clip of the earnings season is going to pick it up a gear, about a third of the companies on the S&P 500 expected to report, including 3 FAANG stocks, Facebook (FB), Amazon (AMZN), Google (GOOGL). Likewise, a number of key economic reports will be released, the focal point being Q2 GDP (growth), which is expected to point to the strongest number in 4 years.

All-in-all, there are a lot more catalysts that are expected to affect market movement. Essentially, what that means is that there will be plenty of opportunities for individual traders.

Have a great trading day!