By Matt Schreiber– WBI President and Chief Investment Strategist
Impeachment proceedings have begun against President Trump and this is causing unrest for market participants. The recent whistleblower complaint was at the center of the controversy and outlined allegations that Trump elicited the help of the Ukrainian President against a political foe for the 2020 election. The House is moving towards impeachment with six different committees and ongoing investigations. With the announcement of the proceedings last week, the market was down on Friday, September 27th as we recorded our eightieth episode of our financial podcast, Bull|Bear Radio. It seemed as if investors developed a case of impeachment indigestion.
Though impeachment proceedings were at the forefront of the news last week, there were also other elements of political harangue that could have upset the markets. The latest US-China trade war news suggests a change in mood when it comes to trade talks. China’s trade negotiators canceled their trip to the Midwest, which was an attempt to renew the purchase of soybeans and pork. However, China has been buying more agricultural goods and meat products, which is a good sign for trade. On another positive note, Nike’s revenue climbed to 22% in China. This may indicate that China has less of an impact on supply chain than previously thought. If Nike made it through fairly unscathed, perhaps the effect on corporate America’s bottom line isn’t as dire of a story?
In other trade news, President Trump and Japanese Prime Minister Shinzo Abe signed a limited trade deal to eliminate tariffs and expand market access on farm, industrial, and digital products. The fact that this could potentially pass through Congress is a step in the right direction for trade, but political support and collaboration is crucial to keep positive momentum otherwise DoubleLine Capital CEO Jeffrey Gundlach may be right when he said there is a 75% chance of recession before the next election.
Stocks were on one of the longest streaks without outsize moves before last week’s decline and the political unrest that emerged. However, when looking at the Atlanta Fed GDP tracker, we can see the latest GDP forecast is about 2.1% as of September 27, 2019. With this being the second quarter of the year, which typically isn’t the highest for GDP, if we can get back towards the 3% range this could help firm the economy.
We’ve had political turmoil for a bit of time now, but with the recent additional political uncertainty, this could taint certain economic inputs. The Federal Reserve Bank of New York had to step in and provide liquidity in the Repo market, which is a bit unnerving. The economy is in need of capital spending, trade resolutions, and a rest in political tensions. Fundamentals are starting to matter, it’s time we start paying close attention to all elements and factors influencing the markets.
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