Stock Market Rise

Stock Market Rally Today, Could Erase Monday’s Over-reactive Fears

U.S. equity markets are expected to trade higher on Tuesday. Based on the overnight futures trade, there was little evidence of the same trade war concerns that drove the major stock indexes sharply lower on Monday.

The steep sell-off yesterday was apparently fueled by a report in Sunday’s Wall Street Journal detailing the White House’s plan to impose technology restrictions on China. The plan was expected to be announced later this week. Nervous traders may have over-reacted to the story which was denied by the Trump Administration later in the session. However, even the issuance of the denial was not with controversy.

Treasury Secretary Steven Mnuchin said in a tweet Monday that a report from the Wall Street Journal about the Trump administration planning to curb Chinese investment in U.S. tech was “fake news.” Mnuchin added, however, that those restrictions will apply to “all countries that are trying to steal our technology.”

Later during the trading session, Peter Navarro, a trade adviser to President Trump, told CNBC there were no plans on imposing investment restrictions on China or other countries. He also said that stock market investors were over-reacting to such fears.

Usually when these situations arise, the markets take care of any discrepancies fairly quickly so I will assume that a mild stock market recovery will indicate that there is some truth in the matter, but maybe the article went a little overboard. However, a full recovery of Monday’s losses, even if it takes a couple of days should raise some questions about irresponsible journalism by the Journal. We’ll be watching to see if this story pans out.

Since the WSJ story specifically mentioned Chinese investments in U.S. technology companies, the tech-driven NASDAQ Composite was hit the hardest, led by steep losses in chipmaker companies and in Netflix which posted its worst day in 2 years.

This isn’t the first time that the U.S. has taken measures to prevent a foreign country from taking a major stake in U.S. companies. Years ago, Congress took measures to prevent China from buying up shares of Union Oil. And just recently after the major oil spill in the Gulf of Mexico, China could’ve bought BP Amoco on the open market then taken over all of its oil rigs in U.S. territory. This move was also prevented.

Harley Controversy

And as far as Harley is concerned, this isn’t a blow to the “Make America Great Again Campaign” as some suggest. This is a business-based decision in reaction to tariffs imposed by the European Union. According to reports, Harley plans to move some of its production to Europe to avoid excessive tariffs on imported motorcycles into Europe.

Did you even stop and wonder why they have production facilities in Europe in the first place, after all it is an American icon? It’s because they wanted to avoid tariffs imposed by the European Union. Yes, they build motorcycles in Europe in order to avoid tariffs created so that European companies like Triumph can sell more bikes than the American-based Harley Corporation.

Just a Thought…

Isn’t one of the arguments for the use of Bitcoin to avoid excessive bank wire fees and to have a free-flowing means of exchange available to everyone? If so then why, so much criticism of the U.S. demand for nearly the same thing?

These critics of the Trump administration’s demand for access to basically closed markets is essentially the same as the bitcoin argument. Yet, it continues to get criticized for “trying to bully the global marketplace”.

Tariffs and the threat of tariffs may be shaking up the markets at this time, however, I haven’t seen any evidence of a speculative bubble, excess energy consumption, price manipulation, and Ponzi and pyramid schemes.

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James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.