Stocks Lower Last Week, But Consumer Sentiment Jumps To 15-Year High
Stocks, after opening lower on Friday, turned positive by mid-morning, but fell back into the red by the close. Stocks were also down for the week, in spite of a big three-day rally, which began last Tuesday, that took markets well off their lows.
The markets cheered reports on Friday that the WH was ready to remove steel and aluminum tariffs on Canada and Mexico. Between that, and reports earlier in the week that the administration will delay imposing auto tariffs for 6 months, as a concession to the EU and Japan while trade talks with those countries continue, buoyed the markets.
But reports late on Friday signaling U.S.-China trade talks have stalled, weighed on the markets.
This was underscored by China's harsh rhetoric regarding recent tariffs. The fact that there's still no set meeting scheduled for President Trump and President XI to meet after the G20 meeting in Japan next month. And to further complicate matters, the U.S. ban on China's Huawei Technologies. While that last item is supposed to be a separate matter from the negotiations, China is accusing the U.S. of "playing little tricks to disrupt the atmosphere" for constructive dialogue.
Both countries are posturing. And they have been throughout the last 10 months of talks.
But both countries also still want a trade deal.
The tariffs are estimated to reduce U.S. GDP by a quarter to a half percentage point, while it could crimp China's GDP by one full percentage point. Both can withstand the pressure. But it's admittedly worse for China right now, especially given the strength of the U.S. economy. China so much as acknowledged this by saying they were prepared to roll out a responsive stimulus plan to counteract the tariffs at the appropriate time. So they know the pain is coming and they are preparing for it. But part of that preparation includes further negotiations to get an acceptable deal once and for all.
In the meantime, our economy looks great.
So does the U.S. consumer. In fact, Consumer Sentiment jumped to 102.4 on Friday, beating last month's 97.2 and views for 97.5. This is a 15-year high!
And E-Commerce Retail Sales showed a Q/Q increase of 3.6%, up from last quarter's 2.0% gain.
The market is likely to see more volatility as the U.S-China trade talks get sorted out.
But the record economy, record employment, and record bull market look set to continue.
See you tomorrow,
Kevin Matras
Executive Vice President, Zacks Investment Research
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