... By K. Matras ...
Stocks Off Ahead Of Busy Week For Earnings And Trade
Stocks closed lower yesterday, but near their highs of the day.
Caterpillar's earnings miss, which they blamed on China (again), and Nvidia's earnings warning, who they too blamed on China, weighed on the market.
But China's weakness should hardly come as a surprise. Their stock market entered bear market territory last year, and they recently reported their slowest annual growth rate in 28 years. Granted, that's still 6.6%. But it's well off their highs of 14.2% in 2007.
Nonetheless, it highlighted the importance China plays in the earnings growth of many companies, and it underscored the high stakes involved in the U.S.-China trade talks, which resume later this week.
Optimism is still high that a deal will get done. But the deadline is still another month away. And there's likely to be plenty of volatility as we get closer to that deadline. But if this week's talks produce a breakthrough of sorts, stocks could rally sharply.
In the meantime, I would expect the market to continue its upward trajectory, which would essentially make up for the trade tension induced pullback we saw last year. In other news, the DOJ announced charges against China's Huawei CFO, Meng Wanzhou. Officials insist the charges are separate from the trade talks. But it's hard not to imagine it having an impact. At the very least, it's a source of friction in already difficult negotiations.
The U.S. also announced sanctions against Venezuela's state-owned oil company PDVSA. While it's not expected to impact the oil market or U.S. gas prices (we only get 6% of our oil from Venezuela, and there's plenty of suppliers ready to take their place), it's likely to be devastating to them as they get 40% of their oil revenue from the U.S.
Gladly, the equities market continues to focus on earnings and trade, as it should. As long as those two tracks remain positive, stocks should do great.
See you tomorrow,
