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Capital Wave Forecast: Week of December 9, 2019

0 | By Shah Gilani

Editor’s Note: I released the full notes of my Capital Wave Forecast to Money Zone subscribers every Monday morning. To get first access to these full notes and learn how to get “in the Zone”, go here.

Last week showed how important the U.S. China trade war is to equity markets.

And then it didn’t.

That’s why investors trying to forecast the market should ask themselves, do trade talks matter?

Today’s Capital Wave Forecast answers that question…

Quick Review of Last Week Sets Up for This Week’s Movements

Markets started last week in a sour mood, with the Dow dropping close to 200 points Monday on a weaker than expected November ISM PMI number.

Tuesday made Monday look calm as the Dow dropped precipitously at the open when investors and traders heard President Trump say he was “fine waiting” on a trade deal with China. The Dow ended the day down almost 300 points.

Wednesday saw stocks recover just enough to give investors hope that if Friday’s jobs number and maybe even the unemployment number were “good,” as in better than expected, stocks might not backtrack to Tuesday’s lows.

Thursday saw more wait and see trading.

Thankfully, Friday’s numbers were great. Futures soared and stocks has a stellar day.

The economy added 266,000 jobs, when an addition of 188,000 was expected. Revisions to the two prior months saw another 41,000 jobs added too. And the unemployment rate fell to 3.5% from 3.6%.

The Dow surged 337 points on Friday, erasing most of the week’s losses and leaving the Industrials down a scant 36.7 points, or .1% on the week.

The S&P 500 managed a .2% gain, closing the week out at 3145.91. The Nasdaq Composite made a comeback too, but still ended the week down a tiny .1%, closing at 8656.53.

What didn’t move the needle one iota on Friday was President Trump’s director of the White House National Economic Council, Larry Kudlow, saying, “The president has said many times if the deal is no good, if the assurances with respect to preventing future thefts, if the enforcement procedure is no good he has said we will not go for it. We will walk away. The president has said that if we cannot get the enforcement and the assurances, then we will not go forward.”

That echoes the president’s Tuesday comment, only with more color and explanation as to what the president is willing to wait for.

The likelihood that the Chinese are going to give the U.S. certain assurances is exactly between slim and none.

Primarily, they’ll stop stealing intellectual property and would agree to strong repercussions if they’re caught doing what they do to advance their economy, the lives of their 1.4 billion people, and their place in the world as a superpower to rival the United States, which they did and can only continue doing by stealing technology and trade secrets

And the markets shrugged that in your face negative news off as if it was a non-event.

In the short-run stocks are prone to bad news about the trade war, with the impact of negative news being a function of the context it’s delivered in and what else is going on in the economy.

But, as we saw clearly on Friday, if good economic news focuses investors’ attention on the U.S. economy growing, adding jobs, seeing wages rise and consumers spending, with the Fed keeping a lid on rates, they’re going to keep bidding up stocks.

To see specific trade strategies for this week’s market, Money Zone subscribers can read on here.

Sincerely,

Shah

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