Market Briefing For Monday, June 17

The 'patriarch' of global modernity has been the United States. It's not exactly 'imperial' (like China is trying to become via Belt & Road Initiatives); but the U.S., has been like a 'Father' to enabling wealth and prosperity, as well as resentment (often the response from the envious less altruistic).  

There is tension as we move past this 'Father's Day'; realizing our President Trump is no father-like 'Caesar', even as he tries (in his own way) to restore respect (or fear) by nations who need to not lose their economic relationship with this Nation, or even see it significantly degraded (borderline happening at this point), as many companies reorient supply-chains and production to a slew of other low-cost manufacturing countries, or back to the USA.  

  

That is a trend that will endure; and as I've suggested, persist beyond what may or may not be a 'trade deal' with China. For the stock market it's terribly important, because of the impact on semiconductor and multinational firms so 'invested' in China. For America itself, it can be a painful interlude that's ultimately empowering domestic companies and bringing greater household income growth to our working-class families; though it's a long-term issue at best; and incidentally, one not entirely deliverable in the evolving era, which features new technology (including AI and AR) reducing workforce levels. 

Competing and being nimble is what business has to do now; contrasted to the prior era of just shifting manufacturing overseas and outsourcing most component supplies too. Perhaps that's what Apple's Tim Cook was at the White House discussing this week (notice how little was noted about that).  

Stocks have been trading in the cross-hairs of trade, with sector rotation as we've tried to address. It's hard to say whether Semiconductors are already attractive on this pullback (I heard one analyst suggest AMD is a buy now; but for those already long from December, they may concur but compelling reasons to jump-in here aren't justified, even if key concerns get resolved).  

The expectation of the Fed cutting rates and propping-up markets is a dicey view of matters; because first of all the Fed may well be loathe to stimulate, with the S&P not that far from all-time highs (amidst the background chaos), and with little maneuvering room below, should they take the political bait (or as might be essentially 'lobbied' by a majority of Wall Street institutions).  

In sum: the United States brought prosperity to every nation that welcomed it. While not exactly the Rome of this era, our roads (supply chains as well) stretch the world over. Many (especially Europe and the Far East) recognize the role America plays; the benefits resulting; and occasionally get humbled if they go off on their own (though China is capable of doing it) as they seek to bite the hand that not just fed, but enabled their ascendancy. The U.S. in a sense sees the downside of continuing to levitate their expansionism, and is responding pretty much the only way it can (if not always delicately). 

It will not be a good day for the world if the U.S. falls, and you get not merely ascendancy of China (aided by the 'debt trap' Brick & Road Initiative funding provided those who take the bait); but continued disruption from radical cults such as have penetrated much of Europe (and are meeting push-back now). So on this Father's Day, let's not lament, but celebrate the American 'daddy' (patriarch of sorts) that has helped the family of nations to thrive; and see if something can evolve that is more balanced for the next generation without unnecessarily dismantling positive aspects of existing post-war structures.  

Bottom-line: happy Father's Day to all Dads and to America :). Seriously; a brief attempt at correlating the special Sunday with the Nation's role in post war globalism and multinational stability; as we approach a tricky two weeks.

The President now says he 'doesn't care if President Xi shows up at G20'; as alternatively he'll be happy to see the larger tariffs simply continue and of course expand. It's really not that simple; and now that companies really are shifting or at least reassessing outsourcing or foreign manufacturing; there's an advantage to stemming the shakeout before more collateral damage.  

  

I suspect that the Morgan Stanley 'expectations' chart shared above reflects some trepidation I've described, but also a swipe at the FOMC next week, aimed at encouraging them to cut rates, even as an insurance policy. I have indicated the Fed can justify taking-back the last little hike; but ideally would merely talk a bit about this, and say 'trade' and other issues are too 'fluid' for now; so they will keep a 'watchful eye' on matters (data-dependency would be the likely explanation as to why they merely eye the markets and not do too much proactively with the S&P this high and GDP not shrinking as far as 'hard data' evidences; even if clear what happens in protracted trade war). 

  

I do believe that 'even with' a China deal; the die-is-cast and sinking chips at this point are reflecting on this. The synergies with networking or huge firms in the technology realm (many are NOT American companies) needs to stay in-force, even at a constrained or re-imagined level. Perhaps Disney might be of help (kidding; but they have staff called 'imagineers', whose role is to conceive, design and maintain the efficiency of the attractions, and keep all going in tip-top shape).  

Economics are already quite a roller-coaster in the real world not just the FantasyWorld that the market sometimes imagines, nor the dark alternative seen by those who view U.S. actions as 'The Empire Striking Back'.