In the summer of 1983, while I was preparing to enter the training program at Drexel Burnham Lambert, the hilarious comedy “Trading Places” was released. The climax of the movie is the year-end release of the USDA report on the orange crop forecast, as all the traders wait for that report to either buy or sell orange juice futures. It’s a binary process, good crop equals sell while bad crop equals buy.
For the last eighteen months it feels like the stock market has traded like orange juice futures, with President Trump’s China tweets replacing the crop forecast. On Thursday afternoon the tweets turned positive and voila the market reversed recent declines and rallied into the close on Friday, with the S&P posting a 0.62% gain for the week. After three months of a stalemate, and only days before another round of tariffs were scheduled to be implemented, Trump cancelled those tariffs as part of a “phase one” trade accord. The specifics of that accord are expected to take as long as five weeks to put on paper, so perhaps the market will get a respite from these crop reports for a while.
The bond market also responded sharply to the tweets, with the yield on the Ten-Year Treasury surging 24 basis points to 1.75%. Concerns that the continuation of the “trade war” between the two largest economies in the world will lead to a global recession have driven rates down to historic low levels. Interest rates tend to rise when those concerns ease.
The economic data continued to paint a fairly upbeat picture, as the headline Consumer Sentiment Index came in at 96.0, which widely beat expectations of 92.0 as consumer sentiment was lifted by lower interest rates and subdued inflation expectations. We continue to watch consumer sentiment closely, as we believe that the economy and the markets are likely to remain stable as long as consumer confidence remains strong. A word of caution, this measure can turn negative quickly, particularly as it relates to the consumers view of current conditions.
For the last eighteen months it feels like the stock market has traded like orange juice futures, with President Trump’s China tweets replacing the crop forecast. On Thursday afternoon the tweets turned positive and voila the market reversed recent declines and rallied into the close on Friday, with the S&P posting a 0.62% gain for the week. After three months of a stalemate, and only days before another round of tariffs were scheduled to be implemented, Trump cancelled those tariffs as part of a “phase one” trade accord. The specifics of that accord are expected to take as long as five weeks to put on paper, so perhaps the market will get a respite from these crop reports for a while.
The bond market also responded sharply to the tweets, with the yield on the Ten-Year Treasury surging 24 basis points to 1.75%. Concerns that the continuation of the “trade war” between the two largest economies in the world will lead to a global recession have driven rates down to historic low levels. Interest rates tend to rise when those concerns ease.
The economic data continued to paint a fairly upbeat picture, as the headline Consumer Sentiment Index came in at 96.0, which widely beat expectations of 92.0 as consumer sentiment was lifted by lower interest rates and subdued inflation expectations. We continue to watch consumer sentiment closely, as we believe that the economy and the markets are likely to remain stable as long as consumer confidence remains strong. A word of caution, this measure can turn negative quickly, particularly as it relates to the consumers view of current conditions.