foxex: LET’S TANGO!

The Market Sum | INVESTOPEDIA

Insight after the bell

By Caleb Silver, Editor in Chief

Friday's Headlines

1. Let's Tango!

2. Chart of the Day: Big Scandals and Big Losses for Big Banks

Markets Close

Dow
25,538.46 +0.82%

S&P
2,760.16 +0.79%

Nasdaq
7,330.54 +0.79%

VIX
18.07 -3.83%

INV Anxiety Index
100.41 0.00%

US 10-Yr Yield
3.013% -0.72%

LET'S TANGO!
November comes to a close with U.S. markets closing higher for the day, the week and the month. It didn't seem like it was going to play out that way, which is why predicting the markets is a fool's game.

Here's the tally:

All eyes are on the Rio de la Plata - Buenos Aires, that is - for the G20 meetings this weekend. The headline event will be the Trump/Xi meeting wherein the two leaders of the world's biggest economies will try to find ways to compromise to head off the escalating trade war.

Here is a good primer on what to expect this weekend.

It's important to note that the trade war is not just a stand-off between the U.S. and China. Given their outsized roles in the global economy, it impacts nearly every developed country that trades with them. This chart from Bloomberg shows how big both of them are, and how dramatic China's growth has been over the last 15 years as the country has caught up to the United States.

Why it Matters:

Of all the things weighing on global markets and multinational corporations right now, the trade war may be the heaviest. This is not to say that President Trump was wrong to pick this fight in the first place. When it comes to trade, the playing field with China is not level and that has developed over decades and through several administrations in Washington and Beijing.

Trump has proven that multilateral trade deals can be reworked and improved, as in the case of the USCMA (formerly NAFTA). That deal was officially signed today and paves the way for even more trade between the North American countries.

The situation with China is not as clear cut, but the downside to an escalating trade war is very steep. The Fed is now worrying about it, companies like Ford and Caterpillar are cutting forecasts because of it, and farmers in both countries are panicking. Whether they like it or not, China and the U.S. need each other for economic growth, and investors need a swift resolution in order to regain confidence.

What's Next:

To be sure, we should not expect Trump and Xi to leave Buenos Aires with a deal in hand. The best outcome would be an agreement in principle for negotiating a deal that benefits both countries and their trading partners. There have been hints of that all week and today. That (and the Fed's indication that it may slow rate increases) may explain why the U.S. markets rallied 4 out of the last 5 days. As Bruce Springsteen would say, "People are just looking for a reason to believe…"

It's Tango Time!

Heavy Headlines today… here are a few worthy of your attention.

Marriott says Starwood database hacked - 500 million accounts affected
Someone needs to explain why, despite this happening in 2014, we are just learning about it now. Those beds just became less comfortable.
Microsoft officially tops Apple as most valuable company on Earth
For today, at least.
Crude Oil Futures down 30 percent in 2 months (CME)
This is not what we would expect to see in a growing global economy. It's finally made its way to the pump, in case you hadn't noticed.
GM's Barra to meet with lawmakers over job cuts (Reuters)
We told you this was going to get political.
Tesla hits 1000 cars a day for Model 3 production (Reuters)
Well done, Elon Musk for not being the center of a story about Tesla. Now, if only he could can convince NASA that workplace culture at SpaceX is appropriate...

Chart of the Day: Big Scandals and Big Losses for Big Banks

It's a case of big banks (allegedly) behaving badly, and investors are being punished harshly for it. Two separate scandals have taken the banking world by storm, and two financial services giants are taking hits that may be very difficult to recover from.

For Goldman Sachs (GS), the investment bank has been entangled in allegations that it was paid substantial fees for deals involving the Malaysian government's state investment fund, in which billions of dollars were later found to be stolen. Goldman's stock dropped precipitously after the revelation earlier this month, and just hit a new two-year low on Friday. Year to date, the stock is now down a whopping 25%.

The situation is even worse for Deutsche Bank (DB), the German banking behemoth. It's being investigated for its possible role in facilitating criminal money laundering through offshore tax havens, along with other major European banks. DB stock hit a new all-time low on Friday just slightly above $9 per share. Year to date, the stock has been cut by more than half.

Overall, banking and financial services stocks have not done well this year. While this could change going into 2019, GS and DB are two stocks that are likely to be pressured for a while.