Home About Archives RSS Feed

@theMarket: Ignore the Noise and Profit

By Bill Schmick
iBerkshires columnist
The world is in turmoil. The news is all bad. Trump is threatening to up the ante on tariffs. NAFTA is kaput. Our trade partners hate us. China won't back down and, if you have time to spare, you are reading about immigrant kids locked in Texas dog cages by order of the president. So why is the stock market holding up?
 
The fundamental reason remains the same. Under all the muck, there is and will continue to be a bid under the stock market. In past columns, I have explained why — corporate stock buybacks, M&A, higher dividends coupled with a strong economy and low-interest rates.
 
If you look at the technicals, which I do, every sell-off seems to stop at a technical support level. In addition, while the Dow Jones "Industrial" Average put together eight down days in a row (it hasn't done that for over 15 months), small-cap stocks were hitting record highs.
 
Why the divergence? Most of the Dow is made up of big industrial companies with a high exposure to overseas markets. Tariffs mean less business; less business means lower stock prices. Small-cap stocks, on the other hand, are U.S.-centric. They rarely export and most of their fortunes are tied to the U.S. market. Ever since the trade wars began in earnest, small caps have soared.
 
Over in the technology space, the same thing is occurring. While commodity stocks are getting crushed (tariffs are bad for trade), large-cap technology and biotech are soaring. That's largely because the world can't do without the products those sectors offer. 
 
The point is that traders are having a field day, shorting the markets on every tweet, and buying them back when the indexes hit a certain support level. Selling material stocks and buying tech, then doing the opposite when the circumstances change. And this will continue. My advice is to just ignore the noise and take a long-term view.
 
This week it was another missive from our Tweeter-in-Chief that sent investors into a tizzy. Trump threatened to levy 10 percent tariffs on another $200 billion of Chinese goods, if China retaliated on the president's first round of trade tariffs. China seemed unfazed by the tactic. So far, this week has been a war of words not actions.
 
Investors should not underestimate the Chinese response, nor assume that it will be confined to tariffs. Kim Jong Un made yet another trip to Beijing this week without fanfare or announcements. Trump assumed that after his historic meeting with the North Korean dictator, he removed that bargaining chip off the trade table. China could be putting it right back in its hands.
 
U.S. Treasury bonds could be another chip on the table. China holds a lot of them, as do other countries. Over the last two months, foreigners have sold about $5 billion/month of our debt. Analysts believe that selling our bonds would hurt the Chinese as much as it would hurt us. That's true, but in this trade war, both sides seem willing to suffer to achieve their ends.
 
Clearly, for the U.S., reducing both exports and imports would wipe out most of the impact of the tax cut. Since the economy is enjoying a faster growth rate this year, (almost 3 percent in the next quarter or two), we could probably absorb some of those negative impacts. The same thing could be said for the losses we would suffer in jobs.
 
Given that the economy is hovering at a historic level of unemployment and may drop even further to under 3.8 percent, it would be an ideal time to be hit with some job losses. Throwing a million or two Americans out of work, as a result of trade wars wouldn't be the end of the world from an economic point of view. Of course, you or I might feel quite differently if it was our job that was on the line. Nonetheless, in this world where even the most obvious of truths can be blamed on others (and believed by many Americans), why not bet the farm since it's not yours anyway? 
 
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $400 million for investors in the Berkshires.  Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.
 
0 Comments
     

Support Local News

We show up at hurricanes, budget meetings, high school games, accidents, fires and community events. We show up at celebrations and tragedies and everything in between. We show up so our readers can learn about pivotal events that affect their communities and their lives.

How important is local news to you? You can support independent, unbiased journalism and help iBerkshires grow for as a little as the cost of a cup of coffee a week.

News Headlines
North Adams Planners OK Marijuana Shop, New Businesses
Adams Officials Looking to Senior Planner to Help Local Business
Harrington Adds Two More to District Attorney's Office Leadership
Adams-Cheshire Committee Approves Amended Agreement
Pittsfield Police Recognize Promotions Of Seven Officers
North Adams Council to Take Up Public Safety Chief Changes
BRTA Work Stoppage Playing Havoc With Regular Bus Routes
Adams To Bring On Senior Planner
Berkshire Health Systems Named a 2018 WWCMA WorkWell Massachusetts
Berkshires Beat: SVHC Celebrates Putnam Nursing School Alumni

Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.

 

 

 



Categories:
@theMarket (275)
Independent Investor (376)
Archives:
December 2018 (1)
December 2017 (5)
November 2018 (9)
October 2018 (5)
September 2018 (4)
August 2018 (9)
July 2018 (2)
June 2018 (8)
May 2018 (8)
April 2018 (7)
March 2018 (6)
February 2018 (7)
January 2018 (7)
Tags:
Retirement Bailout Selloff Deficit Stock Market Currency Crisis Energy Banks Jobs Wall Street Rally Oil Interest Rates Economy Europe Stimulus Taxes Greece Recession Federal Reserve Pullback Europe Housing Commodities Fiscal Cliff Markets Metals Stocks Election Japan Debt Euro Congress Debt Ceiling
Popular Entries:
The Independent Investor: Don't Fight the Fed
@theMarket: QE II Supports the Markets
The Independent Investor: Understanding the Foreclosure Scandal
The Independent Investor: Does Cash Mean Currencies?
@theMarket: Markets Are Going Higher
The Independent Investor: General Motors — Back to the Future
@theMarket: Economy Sputters, Stocks Stutter
The Independent Investor: Why Are Interest Rates Rising?
The Independent Investor: How Will Wall Street II Play on Main Street?
The Independent Investor: Will the Municipal Bond Massacre Continue?
Recent Entries:
The Independent Investor: Will Our Country's Military Win the Next War?
@theMarket: Markets Hope for Trade Breakthrough
The Independent Investor: Sustainability Investing and Millennials
@theMarket: It Is a Black Friday on Wall Street
The Independent Investor: The Origin of Black Friday
@theMarket: Markets Need to Hold Here
The Independent Investor: The Apple of Our Eyes
@theMarket: Stocks Take a Breather
The Independent Investor: Mid-Term Results Take Investor Focus Off Washington
The Independent Investor: Time to Check Your Risk Tolerance