foxex: TRUCE!

The Market Sum | INVESTOPEDIA

Insight after the bell

By Caleb Silver, Editor in Chief

Monday's Headlines

1. Trump and Xi declare a truce on tariffs. Markets are happy.

2. Chart of the Day: Cisco's back

Markets Close

Dow
25,826.43 +1.13%

S&P
2,790.37 +1.09%

Nasdaq
7,441.51 +1.51%

VIX
16.44 -9.02%

INV Anxiety Index
100.61 Neutral

US 10-Yr Yield
2.992% -0.70%

TRUCE!

The tariff war is far from over, but this weekend at the G20 summit in Buenos Aires, Presidents Trump and Xi agreed to a 90 day ceasefire on new tariffs. That could pave the way for a broader trade agreement between the two economic powerhouses.

Think of it more like a reprieve than an actual deal since existing tariff increases are still in place and more may be added in time.

It is worth reading the official White House statement made aboard Air Force One on the way back from Argentina, but if you are in a hurry, this is the key takeaway:

"...President Trump and President Xi have agreed to immediately begin negotiations on structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture. Both parties agree that they will endeavor to have this transaction completed within the next 90 days. If at the end of this period of time, the parties are unable to reach an agreement, the 10% tariffs will be raised to 25%."

That hardly reads like a done deal, but it does give hope that common ground will be found in the next 90 days.

Why it Matters:

This is obviously what the markets needed. As we've seen over the past several months, uncertainty and unpredictability are dangerous for investors. The markets have responded like we thought they would, but the 400 point jump in the DJIA at the start of trading did not last. Still, the DJIA, S&P500 and the Nasdaq all closed up 1 percent or higher on the news.

Greg Valliere, Chief Strategist for Horizon Investments summed it up in a note to clients this morning:

"THERE ISN'T A DEAL, of course, but the markets -- which have demanded one -- can relax for a while. The key is that things won't get any worse for three months or longer: there will be no new 25% tariffs, there was progress on autos, fentanyl and especially agriculture. Trade anxiety will heighten again by early spring, but there's nothing wrong with a winter truce, is there?"

Horizon Investments' Greg Valliere

As part of the 'truce', President Trump said he would allow Qualcomm to explore an acquisition of NXP Semiconductor, a deal he forbade in the heart of the dispute with Beijing. This seems a moot point, though, considering Qualcomm is no longer pursuing the deal, according to reports. That said, there has been a lot of damage done since the tariff escalation war began. China now buys most of its soybeans from Brazil. U.S investment in China's emerging telecom giants like ZTE is prohibited, and there is a lingering fear that U.S investors will miss out on the explosion of China's tech sector, in general. The Chinese government has made a commitment to be the world leader in technology by 2025. I wouldn't bet against them.

What's Next:

The White House is promising that a broader deal with China will come 'very quickly', as economic adviser Larry Kudlow told CNBC. There is incentive on both sides to make this happen, though Xi is not facing a reelection campaign in 2020. Trump has yet to announce a campaign for re-election, but a trade victory with China would certainly bolster his efforts if he were to run.

There are still plenty of other obstacles facing stocks, but some key risks have diminished over the past two weeks: the Federal Reserve has hinted that we may be close to neutral on interest rates, the trade war with China has reached a reprieve, and October's selloff lowered stock valuations in the priciest sectors of the market.

Are we 'all clear', and ready for new market highs? Probably not. Investors loved this news today, but we typically overreact to the both good and bad news, and something tells me we're doing it again.

Headlines worth a look:

Reports: Altria is exploring an acquisition of Canadian cannabis producer Cronos
It's only a matter of time before Big Tobacco gets into the cannabis business in a big way. This deal might not happen, but something will.
Why Qualcomm is not pursuing $44 billion purchase of NXP Semiconductor
Uncertainty, despite the positive talks in Buenos Aires, makes that size of a deal worth reconsidering, apparently.
Tencent Music plans $1.2 billion U.S. IPO
This is likely just a litmus test of how U.S. investors will respond to China's biggest internet platform.
GM CEO Barra to face Senators Wednesday over planned job cuts
We told you it's going to get political.

In case you missed it, Saturday Night Live had a very funny spoof on Netflix this Saturday, and the streaming entertainment giant's plan to spend billions on content.

It's good for a laugh.

Chart of the Day: Cisco's back

It's been easy to overlook that Cisco Systems (CSCO) – a tech kingpin of the 90's and former bellwether of the industry – is back in a big way.

In fact, the networking and telecom equipment maker has been gradually clawing its way back to market relevance ever since its stock took a massive dive in the first couple years of the 2000s. Since bottoming out in late 2002, the stock has been in various stages of consolidation and recovery.

Within the past three years, though, CSCO has staged a steeper recovery, and the stock has risen 27% this year alone (year-to-date as of Monday). Just two months ago, in early October, CSCO stock reached nearly an 18-year high just short of $50 per share.

What accounts for Cisco's long-overdue rebirth? In recent years, the company has faced many challenges potentially threatening its business. Most importantly may be the emerging dominance of cloud technology, particularly from Amazon.com (AMZN) and Microsoft (MSFT). However, Cisco recently assured investors that it is facing these challenges head-on, and that it is positioning itself to be an integral aspect of the cloud-based economy. The company also recently reassured investors that a U.S.-China trade war would not have a significant impact on its business (CSCO stock surged further on Monday along with most of the market after President Trump and Chinese President Xi agreed to pause the trade war). As for recent performance, several of the company's primary business units achieved double-digit growth last quarter.

Does all of this mean that Cisco's stock will continue to outperform and trend higher? That remains to be seen, but at the very least, the fabled tech giant appears to be on much surer footing and potentially poised to regain its status as a major force among the tech elite.