Investors on Edge: Seesaw Session Ends Mixed

Investors were kept off balance by the headlines today. The main indices opened lower on President Trump’s tariff threats against China, shot higher on reports of trade progress, then coughed up gains and closed mixed after those hopes waned. The Dow Jones Industrial Average and S&P 500 ended slightly in the green, but well off their session highs.

Chip maker stocks slumped for the sixth time in the past seven sessions amid fears of slowing demand, dragging the tech-heavy Nasdaq into the red.

Before I delve into today’s seesaw session, a few words about the perpetual bears.

I recently pulled an investment book off my shelf and got reacquainted with its themes. It’s a dire tome, warning of global economic and financial collapse because of the moral failings of policymakers in countries everywhere. The book’s advice: sell stocks, sell the kids, sell everything!

The book was a bestseller that came out in 2010. If you had followed this author’s advice, you would have missed the longest bull market in history.

Professional courtesy prevents me from naming the book or author. I mention all this because, even though I’ve regularly sounded warnings about certain market risks, I have no patience for the financial world’s fear-mongering gloomsters. There’s still plenty of money to be made in this market, but you need to deal in reality, not fantasy.

A real risk right now is emerging market weakness, as foreign currencies wallow in a severe slump. I discussed this danger in yesterday’s Mind Over Markets. However, U.S. economic statistics are encouraging.

The U.S. Labor Department reported Wednesday that its producer price index (PPI) for final demand fell 0.1% in August after remaining unchanged in July. Last month’s decline in the PPI was the first since February 2017 (see chart, compiled with data from the U.S. Bureau of Labor Statistics):

An increase in the cost of energy products was offset by declines in the prices of food and trade services. In the 12 months through August, the PPI rose 2.8%, slowing further after July’s 3.3% increase. Economists had forecast the PPI increasing 0.2% in August and advancing 3.2% year-over-year.

The so-called core PPI, which excludes food, energy and trade services, gained 0.3% in July. In the 12 months through August, the core PPI increased 2.9% after rising 2.8% in July.

The Federal Reserve’s preferred inflation gauge, the personal consumption expenditures (PCE) price index excluding food and energy, increased 2.0% in July, reaching the Fed’s 2% target for the third time in 2018.

Rising rates are weighing on the housing sector. The Mortgage Bankers Association reported Wednesday that U.S. mortgage refinancing activity declined last week to its lowest level since December 2017.

Today’s report of an unexpected fall in U.S. producer prices nonetheless comes amid an overall long-term strengthening of inflation. The steady rise of oil prices this year has cheered investors but also plants the seeds of future inflation.

Oil prices rose again today, due to expected supply disruptions from Hurricane Florence. West Texas Intermediate rose 1.46% to close at $70.26 per barrel. Brent North Sea crude rose 0.78% to close at $79.68/bbl.

The Fed meets Sept. 25-26, at which time it’s expected to hike interest rates again to prevent the economy from overheating.

The trade war is driving up input costs, which in turn fuels inflation. Tariffs also are causing uncertainty and prompting companies to delay investments and hiring plans.

Trade war backlash…

More than 60 U.S. industry groups launched a coalition Wednesday to publicly lobby against Trump’s protectionist policies. Called “Americans for Free Trade,” the coalition is a multi-million-dollar effort comprised of thousands of businesses, farmers, manufacturers, and trade associations.

Americans for Free Trade will conduct media buys and grassroots outreach. It also will fact check and respond to tariff announcements.

Trump has imposed 25% tariffs on $50 billion worth of Chinese goods, mostly industrial machinery and electronics parts such as semiconductors. Another salvo of tariffs against China worth $200 billion is pending and the White House threatens to impose an additional $267 billion.

Business leaders initially assumed that Trump’s tough trade rhetoric was a negotiating tactic, but that delusion has fallen by the wayside. The unveiling today of Americans for Free Trade represents an extraordinary break between a pro-business Republican president and corporate leaders.

Meanwhile, Wednesday was a big day for Apple (NSDQ: AAPL). CEO Tim Cook announced a new set of iPhones and Apple Watches, to lay the groundwork for holiday sales.

However, investors found the Apple product event underwhelming. The Cupertino confab also was overshadowed by trade tensions. Trump is directly pressuring Apple to manufacture its products in the U.S. to avoid his proposed tariffs. AAPL shares today fell 1.24%.

This bull market probably has further to run, but many of the mega-cap leaders, especially in the tech sector, are losing steam. Reduce your stakes in momentum stocks. No one bangs a gong to announce the start of a correction.

Wednesday Market Wrap

  • DJIA: 25,998.92 +27.86 (0.11%)
  • S&P 500: 2,888.92 +1.03 (0.04%)
  • Nasdaq: 7,954.23 -18.25 (0.23%)

Wednesday’s Big Gainers

  • Galapagos (NSDQ: GLPG) +16.52%

Biotech reports promising clinical data on new drug.

  • USA Technologies (NSDQ: USAT) +10.33%

Cashless payment systems provider rebounds from accounting concerns.

  • Immersion (NSDQ: IMMR) +7.25%

Analysts bullish on haptic device maker’s new leadership.

Wednesday’s Big Decliners

  • Vital Therapies (NSDQ: VTL) -92.86%

Biotherapeutic firm scraps treatment for liver failure.

  • Snap (NYSE: SNAP) -7.03%

Wall Street cuts share price target for social media app developer.

  • Power Integrations (NSDQ: POWI) -6.06%

Integrated circuit maker gets downgraded by analysts.

Letters to the Editor 

“How badly could the trade war hurt the world economy?” — Barbara M.

According to Oxford Economics, the trade war could cost the global economy $800 billion, or 4% of global trade.

Questions or opinions about tariffs? Let’s hear them:

John Persinos is the managing editor of Investing Daily.