Market Briefing For Friday, Oct. 11

'For Whom the Bell Tolls'  certain applies to ongoing personalities as well as issues, as chaos seems to beget chaos in so many aspects. It's not just politics either, though that's a centerpiece of focus these days.

This relates to everything from Impeachment, to Brexit, to whether the violations of pledges not to revive ISIS (allegedly already) by Turkey in this case freed terrorists (by their bombing of a prison); to China's NBA snub; to the specter of PG&E's power-grid debacle in California; to the swirling incrimination's surrounding Washington (where today 'aids to' Giuliani were involved). It also surrounds market prospects depending on how the trade negotiations sort-out, basically as is now known.   

 

  

As to the U.S. / China deal; everyone knows where things stand at the moment (even the President perhaps haha). Perhaps the surprise will be (over time, not the initial reaction) if the markets are stronger as time goes on, since the majority seem fairly on-board our idea that the upside won't be sustainable. It probably won't be; but if they all agree, and sell the first rally; maybe an ensuing lift achieves a higher level.   

In sum:  a "rally relief" following sort of truce announced, like we have mentioned repeatedly, and unresolved so-called "core interests" that of course remain (some call it 'structural' China), will likely be pushed into some sort of periodic discussions without resolution, well- into 2020.  

With Q3 Corporate Earnings really kicking off next week, most have already lowered forward expectations. I envisage the majority have met their goals, analysts will be focusing on these companies future 2020 guidance, which is tough for CEO's and CFO's as of now. Truly a lot of pressure on multinational companies; but smaller firms suppressed (it's part of the limited universe of stocks that lifted the S&P; but not others); so ironically those small-caps and big industrials may do a bit better as they can envision a better environment to plan business going forward.

And the surprise would be if the market holds up better, since everyone seems to concur with the idea that a deal is mostly-priced-in. I doubt an initial move will be terribly sustainable, but a later rise might do better; at the same time (barring 'system risk' issues surfacing) envisioning a better environment next year might limit the extent of ensuing selling.   

Bottom-line: might well be whether I think this market holds-up with a U.S. - China deal celebration, with upside persisting until Christmas. I would expect upside; but much has been discounted by the S&P (may help some bedraggled small-caps more than the leadership issues).  

So the answer is yes favorable response, it gets sold into; then that drop rebounds, only to possibly see an ensuing purge with a bit more downside staying-power. But none of that is catastrophic and none of that argues against a stronger phase within 2020. 

 

If there's a serious bearish concern it remains 'systemic risk' implied it seems by the Fed-facilitated liquidity injections; discussion of which of course have faded from financial news focus (understandable with the crucial trade deal anticipation); but remain somewhat unexplained by a cautiously-speaking Fed Chairman the other day. He did reference the 'systemic risk' as being moderate; and that alone is uncomfortable.