BIG IMPACT OR SMALL IMPACT?
U.S. Treasury Secretary Steven Mnuchin indicated Sunday the U.S. is hopeful to strike a deal with China, which means the tariffs would never go into effect. However, if a deal cannot be reached, how significant are the tariffs relative to the big picture? From CNBC:
Jeremy Zirin, head of investment strategy at UBS Wealth Management Research, told CNBC that President Trump’s announcement Thursday on tariffs on up to $60 billion in Chinese imports didn’t seem that bad.
“The economic impact of [the tariffs] is less than one-tenth of 1 percent,” Zirin told “Squawk Box.”
“It’s actually pretty bullish what we heard yesterday,” he added. “If you look at the steel and aluminum tariffs as a template, things got watered down and then scaled back. So, if you look at the whole economic backdrop, still a very good profit momentum.”
TWENTY-YEAR BREAKOUT
From a bigger picture perspective, the economy does not appear to be on the brink of a recession and the 20-year breakout in the Value Line Geometric Index is still in play.
AN OBJECTIVE LOOK AT THE MARKET AFTER FRIDAY’S SELL-OFF
Last week was ugly in the stock market. If we put normal human emotions aside and examine the facts, what can we learn about the odds of a new bear market relative to the odds of a resumption of the current bull market?
BULLISH TREND, FOLLOWED BY CONSOLIDATION
The stock market was unequivocally in a long-term bullish trend prior to the recent correction. As noted on March 21, the S&P 500 has drifted within a wide range since February 2, including last Friday’s volatile session. As long as a sustained break of the lower end of the range does not occur (something that is entirely possible), the base case remains a normal correction within the context of an existing bull market. If a series of lower lows, below the lower end of the range, is in the cards, we must become open to more bearish outcomes.
This article by Chris Ciovacco of Ciovacco Capital management originally appeared here and has been reprinted by permission.
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About Chris Ciovacco
I’d like to see your take on the momentum of stock buybacks and how that’s going to affect the next downturn.
Desmond,
Good question! Historically stock buybacks have given a short term boost to individual stock prices but have had a negative correlation over the longer term. In other words, companies that have had buybacks have underperformed the overall market. Perhaps, because they were not being creative in what to do with their money and all they could think of was to buy their own stock.