Market Briefing For Tuesday, July 23

Quiet before the 'storm' - seems a reasonable way to view S&P behavior currently. However, it's unclear that the storm will have the intensity or even the duration of some of the 'actual' thunderstorms experienced yesterday in a good portion of the Country (amidst the continuing heat extremes).

Excessive focus on Fed monetary policy overemphasizes what it means or can do for the market at this point; as I've noted lately. More important may be a possibility of Sec'y. Mnuchin and trade negotiator Lighthizer returning to Beijing as soon as later this week. On the other hand, new sanctions the Sec'y. of State (Pompeo) indicated probable today, for China offloading Oil from Iran, may or may not 'gum-up the works' of ongoing trade talk progress (although that too is impossible to pin-down so perhaps the State Dept. has a different approach to that).

What is clear is that lots of leverage is being used (beats military force) with a few efforts to get countries to comply with sanctions; or to deter Iran from 'too much' folly with Persian Gulf tanker traffic. One reason they don't 'sink' a tanker (as some fear) is because the coastline they'd pollute is their own.

But there's a view that President Trump overlooked a lot of what they're up to in a Cabinet Meeting about this; as he clearly has a different agenda than some around him; probably tied more to getting Iran out of Yemen mostly. At the same time, deploying limited Forces to the Air Base outside of Riyadh is more for preparing the facility for arrival of a Squadron or more of fighters or support aircraft, rather than merely the couple Patriot air-defense batteries. I think for now this is a warning to Iran, more so than any love for the Saudis.

Tonight, with so little happening; let me summarize a few points. I promised to create more 'bullet point' synopses of events or factors impacting the market, and I'm going to try doing that more until a new market moving factor of significance (requiring discussion) arrives.

The S&P remains choppy, but sustained by a few techs and firming Oil, amidst speculation about how the market will react, or digest, rate cuts;

S&P behavior responding to trade talk speculation regarding China has been dulled to an extent, because of so many hints that don't pan out;

Technically the market has limited upside; but every time it drops, shorts come aboard, and they are expeditiously run-in by the very next rally;

Air-pockets do exist in this market; and that's generally earnings-related when certain stocks miss numbers;

Even then everything becomes fairly gradual except for shocks (such as Netflix which we've been bearish on since almost 100 points higher;

Small stocks are just meandering with no particularly excitement; but as their periods of consolidation and expenses for preparing for the new 5G era starts to stabilize, the investment risk 'probably' is comparably less;

Someone asked how the price trades for hours 'at' the offering price of a Secondary: the Syndicate initially likely shorted the stock, hoping to just cover at the offering price. That avoids needing to place the full amount and they can walk away with a tidy profit on top of generated fees; or if needed; they then use some of the presumed shorted shares to defend the offering price; probably what we're seeing right now;

Boeing got downgraded by Fitch but that's well after-the-fact reaction; while Airbus has an issue with 'fumes' from the APU in the A320 series (I delved into that a bit in the 2nd video; turns-out known for years but not identified...probably can be addressed by more careful 'cleaning');
Few investors (or politicians) noticed that as the airlines lobbied against (primarily) subsidized Middle East carriers; they didn't mention how our U.S. airlines are contributing to China's 'Belt & Road' initiative in a way;
Of note: Delta Airlines made a $450mm investment in China Eastern a few years ago; it's heavily subsidized;
In his testimony to Congress; American Airlines CEO Doug Parker did not reference American's investment of $200mm in China Southern; a code sharing partner of American's, and also heavily subsidized;

One more stock note: late today it was announced that Apple is indeed 'in formal talks' to buy Intel's wireless division (in the US & Germany); something I'd noted was being quietly negotiated over a month ago;

Qualcomm is a bit lower as this may also help Intel's processor Apple relationship -perhaps part of a deal was getting Apple to commit not to move entirely to ARMS chips away from Intel; at the same time the deal refocuses the urgency of 5G to Apple even if they tried to minimize it's significance.. as is ok only for now);

Finally the market is unsure what (if anything) to make of the upcoming Mueller Hearings; and whether it will have any trading or even lasting political meaning (if it does, certain assumptions about 2020 get debatable).

In sum: concern about stoking asset price bubble should be on the mind of the Fed; even if some in Washington are more interested in higher prices no matter what it does with respect to 'boxing the Fed in', and assuring a more difficult market environment as relates to monetary policy down the road.

It is conceivable moderate behavior by the Fed can be sufficiently neutral to not impede the market from continuing corrections in weeks or months just ahead; but not behave so frenetically that even a defensive bias contributes to fear of panic. That's why they trotted-out the Boston Fed President Friday to refute the New York Fed President the prior day; who was too dovish.

Bottom line: the market is not concerned about the Debt Ceiling issue; so if anything (if it's an end-of-the-world debate and I don't think it merits all that) a bit of relief rally arrives on that 'lifting' of limits; temporary or not. Then the market focuses on next week's Fed Meeting; and broadly-pressed rate cut (the rate cut that's not necessary and could be counterproductive).

Conclusion: optimism is pretty-much baked-into this market. Be wary.