The Year Is 2023. The S&P 500 Rallies To 6,000 On Hopes Of A Phase 10 Trade Deal
If you were hopeful that the trade negotiations that took place between delegations from the U.S. and China last week would put an end to the trade war, you're out of luck. The negotiations didn't yield enough of an outcome to convince skeptics the two sides are any closer to a deal than they were before the meetings.
President Trump announced Friday the U.S. had come to a "very substantial phase one deal" with China. The phase one deal yielded a freeze on tariffs that were set to go into effect tomorrow, China agreeing to purchase $40 billion to $50 billion in U.S. agricultural products and issues surrounding IP protections such as copyrights, trademarks and piracy. President Trump, when asked what was different from previous negotiations, replied this phase one deal is "bigger" and it's a "tremendous deal for the farmers."
As a matter of fact, you could argue that the outcome of last week's meeting isn't much different than the outcome of the highly anticipated G20 Summit in Buenos Aires that took place from November 30 through December 1 last year. Following the G20 Summit, President Trump agreed not to boost tariffs on $200 billion of Chinese goods on January 1, while China agreed to buy a "very substantial" amount of agricultural, industrial and energy products. Following the G20 Summit, markets had a vicious selloff on the news, with the S&P 500 falling 16% over the following three weeks.
So what was not resolved in the meetings that produced this phase one deal? The two sides did not discuss the larger IP issues such as technology transfers, cybersecurity and product standards reviews. The issues surrounding Huawei, which has been on the U.S. trade blacklist since May, were also not resolved. Finally, U.S. Trade Representative Robert Lighthizer said a decision hasn't been reached on whether to freeze tariffs scheduled to go into effect on December 15.
Skeptics will point to the fact that little to no progress was made on some of the most pressing issues. Also, nothing from the phase one deal reached Friday was put into writing. President Trump said it may take up to five weeks to get a pact with China in writing and acknowledged the phase one deal could fall apart during that period.
Many believe, rightfully so, that this whole ordeal is just meant to push up the stock market. China's Twitter mouthpiece Hu Xijin confirmed as much, revealing President Trump reportedly said "the markets surge whenever China-U.S. trade talks made positive progress." The irony is the trade talks were intended to help ordinary Americans, but it is the top 10% who own most of the stocks that are benefitting from the market continuously rallying on hopes of a trade deal.
After all, if trade wars are "easy to win," why has it taken so long to come to a phase one deal that doesn't touch on the big issues at hand? In the meantime, we wait to see if markets will now rally on hopes of a phase two trade deal or if it turns into a sell the news event like it was last December.
It's still the most hated bull market in history. Investors have piled $322 billion into money market funds over the past six months, which is the fastest pace since the second half of 2008. Total money market assets, which now stand at nearly $3.5 trillion, are at their highest level since September 2009. Money market funds have seen inflows nine of the past ten weeks and every month this year except for April. As some have said for years, this "cash on the sidelines" could continue to fuel the markets.
This is probably just the beginning. The State of Michigan Retirement Fund has pulled $600 million from Ken Fisher's Fisher Investments following his remarks at an investor conference last week. The decision to end the 15 year relationship with Fisher was "unanimous" according to Michigan’s chief investment officer. Fisher, whose firm oversees more than $100 billion in investments, compared attracting client funds with "trying to get into a girl's pants." Additionally, Fisher "will not ever be invited back to a Tiburon CEO Summit."
Will they all become finance Twitter traders? According to a research report from Wells Fargo, the U.S. banking industry will lose 200,000 jobs to robots over the next decade. The banking industry spends an estimated $150 billion annually on technology, with positions in call centers, branches and back offices most likely to be affected. However, this is hardly surprising as robots have essentially taken over the equity markets already. Marko Kolanovic, global head of quantitative and derivatives research at JPMorgan, estimates passive and quantitative investing accounts for about 60% of trading volume in stocks, more than double the share a decade ago. With robots set to continue their takeover of financial services, Leon Cooperman and Jim Cramer will have even more reason to blame technology when stocks go down.
Facebook will need to find new friends. Following in the footsteps of PayPal, EBay, Visa, Mastercard and Stripe all announced Friday they will also be dropping out of Facebook's Libra cryptocurrency project. Libra's 28-company coalition has now lost four of its members in the last week. David Marcus, who oversees the Libra project, cautioned "against reading the fate of Libra into this update." Amid criticism from regulators and lawmakers, Facebook CEO Mark Zuckerberg will testify on Libra to the House Financial Services Committee on October 23.
Sounds like something out of 1984. In an effort to combat the surprises created by technology companies' innovations and their effects on local businesses, San Francisco will create an Office of Emerging Technology. Before new technologies enter the public, the office will review and "issue a Notice to Proceed if the net result is for the common good." Perhaps this will only encourage companies to leave San Francisco, where making $100,000 per year is considered low income and the number of residents living in vehicles has jumped 45% since 2017.