E Market Briefing For Wednesday-Thursday, Nov. 6-7

Contradictions and profit-margins are the latest manifestations of a series of worries regarding how the economy (and stocks) will do in the wake of a (presumed) forthcoming significant U.S. / China trade accord that has bedeviled retailers and importers of all stripes thru the year.  

The domestic economy is in reasonable shape, but growth is sluggish, to say the least, and there is concern that retailers will suffer after they blow-thru existing inventory (and tariff absorption); which already has a few key casualties that (some think) might otherwise have survived (of course Barney's New York and Forever 21 come to mind).  

 

One big question is what's going to drive earnings higher at this point; and that's a valid topic. The answer is that many big-cap leaders that helped S&P get to where it is, already prices-in most of potential data (earnings) improvement; while a lot of dormant (depressed in many cases) stocks hammered during the trade war, need to see visibility for growth recovery.

And, that depends largely on what the presumed Phase 1 China deal is. If it's mostly Agriculture, there's no assurance that such stocks will do immediately better, aside a post-year-end tax-selling relief bounce, as they then become dependent typically on the technology transition year not turning into two years.  

 

Consistent slowing is mitigating to stabilization in manufacturing; but of course those that depend on low-interest consumer loans are probably going to continue to languish; especially autos and such non-essentials like recreation vehicles, boats and so on.  

  

Pressure remains on sectors like those; and also where expenditures are essential for the transition we'll note ongoing; not to autonomous driving or 5G alone, but rather to alternative power (mostly EV or an interim focus on perhaps superior Hybrid technology). Hence you have capital expense levels (retooling factories, dealerships and systems for charging networks) that enable the future, but limit profits in the shorter run. It's another variation of the technology transition.  

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