It appears that the United States and China have tentatively reached a partial agreement on trade. Basically, the U.S. would pause further tariffs, while China would agree to agricultural concessions among other things. Markets have rallied on the news, with stocks moving materially higher and bonds dropping, meaning yields increasing. I think this is clearly good news in that the two sides can work together to at least resolve some issues. The major issues such as IP fraud and copyright infringement are much more important long-term, and will likely take a longer time to resolve.
There have been a lot of global headwinds with the trade war and Brexit lingering in the background. Any little resolution that increases both consumer and business confidence is likely very good for the global economy, as fear itself can be one of the biggest headwinds to growth. In other positive news, there seems to be progress being made on the Irish backstop question, which has been the biggest impediment to a Brexit deal. Who knows if any of these developments will lead to a final resolution, but with the October 31st deadline approaching soon, it is positive that both sides seem to be working together to sort it out.
Economic data continues to be very weak overall, although the unemployment rate being at record lows is a major positive. Consumer spending in the U.S. is still quite strong, but the momentum has stalled relative to what we saw last year. Clearly, the political climate continues to be awful, and I highly doubt it will improve anytime soon. Many market participants overreact on how politics impacts their investments. In terms of investing successfully, the most important thing is buying securities at a large discount to intrinsic value, regardless of who is in charge. Major sea changes will definitely impact security prices, but often markets overshoot one way or the other creating opportunity.
Earnings season starts in earnest next week, so hopefully we can put out some research reports. I expect good performance overall, but I also do think that many companies will be uncertain about their guidance due to all of the major issues that are occurring with trade, interest rates, etc.
There is no doubt that progress is better than no progress, so I’m cautiously optimistic about the opportunity set.