The volatility continued last week especially on Friday where China was the culprit. China reported surprisingly weak industrial production and retail sales numbers. Their retail sales for China were the worst they’ve been in 15 years. We are starting to see the trade war have a negative impact on the Chinese consumer. This week our attention is on the U.S. because a lot of economic reports are coming out. We have ten market trading days left in 2018. Today, we’ve got manufacturing numbers being released and tomorrow housing starts which have been weak because of higher interest rates, so we’ll see what happens there. Wednesday is the day that the Feds makes their decision. It’s not necessarily what the Fed does, we are expecting them to raise rates, it’s the verbiage that we are anticipating and what they plan on doing going forward. The market is going to be looking at those things very carefully. We need a little help from the Fed here for some positivity. Thursday consumer sentiment business outlook comes out and then Friday durable goods orders, partial income and a revised look at third quarter GDP numbers will be out. We are hoping for some positive number to close out the year.
The History of China’s Market
Everything that is going on with China, we have witnessed before and is almost an identical playbook of that historical time. See if this sounds familiar, a U.S. Republican president and a far East Asia nation that was basically trying to dominate in the world economically. The U.S. pushed back at them and allegations arose that they were stealing technology. Japan capitulated in the trade war and one of the things they did was lower their interest rates which caused an import boom. They had some bubbles in their economy and overall it did not do very well but the U.S. economy at the time, however, did do well. This same story from 30 years ago seems to be repeating itself. A lot of what you’re seeing in the Chinese situation now is that they are aware of the Japanese history and that’s why recently it’s been a little bit more difficult to get things done.
There are emotions and open negotiations taking place that have an impact on the market. From a technical analysis standpoint, the February lows of 2018 were around 2580 on the S&P. If we go below that there’s a good chance that we could see the S&P 500 around 2100-2300 but there’s no guarantee. It raises the question, is this market a bear market or is it just a correction, as we experience the emotions out there based on the economic numbers that we’re seeing. We’re going to continue to stay focused on that as the year comes to an end. We’re looking for those sectors that our clients can benefit from and we’re going to keep you updated throughout the holiday season.
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