Huawei Reprieve, Global Stimulus Rally Stocks

Another Trump overture to Chinese technology giant Huawei to help US companies along with the proposed German and Chinese plans for stimulus have helped the stock market rebound sharply the past 3 days. As much as Trump wants to tighten the screws on China to coerce a trade deal, US and global tech is stubbornly dependent upon the superior technology and market share dominance of Huawei to upgrade our enormous communications infrastructure. The 90 day reprieve along with the postponement of other threatened tariffs hikes is an effort to maximize critical US holiday spending and provide another window for Chinese trade concessions. While modest new stock market record highs are possible within the context of a 3rd quarter sideways corrective period, any break above our resistance zone in the SP 2970’s improves the odds of the recent August price lows providing strong support. The global economy and corporate earnings continue heading lower with minor recessions in parts of the world, yet equity markets are forward looking and are currently boosted by expectations of stimulative efforts buffering the downside near term while clearing the runway for further upside longer term. We expected a minimum 8% correction in August with potential for as much as 14% by the end of October. While the corrective trading range should continue, the markets are behaving well short term as they process the risk amplitude of further downside economic data inside the framework of expected positive news longer term.  

This remains an extremely headline sensitive market from minor flash-points of war in the Oil rich Middle East and a hard Brexit to macro concerns of a Bond market panic if China and the US move closer to the recession fires spreading in Europe. Geopolitical actions by President Trump and Xi in China are unpredictable, but we remain constructive that this forecasted economic cycle low due near late 2019 will fail to engender an economic contraction and commensurate equity Bear market. Use extremes in our trading range outlined to add or reduce equity exposure in the weeks ahead.

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