Only days after hitting an all-time high of 28,090.21, the Dow Jones Industrials Average slipped 1.15%, closing Thursday, November 21, 2019, at 27,766.29.
That’s a small loss considering that the U.S. is threatening China over its control of Hong Kong.
With Congress passing the Hong Kong Human Rights and Democracy Act this week, which now goes to the White House for the president to sign or veto, markets could see more profit taking, or they could do what they’ve been doing: ignoring bad news and moving steadily higher.
The Steps Ahead for U.S. and China Are Shakier than Ever
The House of Representatives voted 417 to 1 to pass their version of the Hong Kong Human Rights and Democracy Act. The Senate on Tuesday passed its version of the draft bill unanimously. The House quickly reconciled its bill in alignment with the Senate’s bill.
It now goes to the president to sign into law or veto.
While President Trump is expected to sign the bill, he could veto it.
What’s at stake for the president is his leg up on the Chinese as the two negotiate their way out of the trade war launched by the U.S. last year.
Congress can force the bill into law, if the president vetoes it, because it has a “veto-proof” majority to override a veto.
In terms of his China trade war strategy, the president could veto the bill and explain to the American public that while he supports it 100%, he doesn’t want a law that infuriates Beijing to impact his chances of getting everything he wants out of China in their trade war negotiations.
Knowing the bill will be passed into law over his potential veto, let’s the president show Beijing that he’s willing to work with them, at the same time explain to the American public his support for democracy in Hong Kong.
However, that’s not likely, because the president, moreover, wants the American people to not doubt his resolve to uphold American values globally.
What’s more likely is the president will sign the bill into law.
The Hong Kong Human Rights and Democracy Act forces an annual review of Hong Kong’s autonomy to justify its special legal treatment by the United States. If mainland China suppresses democracy in any number of ways, then Hong Kong sanctions on China and on Chinese officials along with other actions would be undertaken.
Beijing slammed the bill and threat of sanctions as “blatant interference in Hong Kong’s affairs and China’s other internal affairs.”
What markets fear the most is China walking away from trade negotiations and upping tariffs on U.S. goods.
That hasn’t happened, yet. But the president hasn’t signed the bill, yet.
The likelihood of a market selloff if China walks away from trade negotiations is fairly high. Especially since the media, some economists and analysts have been predicting a recession based on the trade war escalating globally.
But, the extent of any selloff would likely be mitigated by other factors.
Principally, the called-for recession hasn’t arrived, so far.
And isn’t likely to.
The more likely path for stocks is higher. That’s because the recession narrative is fake.
Next week I’ll tell you exactly what the recession talk is, where it’s coming from, what’s fake about it and what’s really going on.