 The Market Sum | Insight after the bell
By Caleb Silver, Editor in Chief Friday's Headlines 1. U.S. Markets Sell-Off on News of Stalled China Trade Talks 2. Where Would We be Without Buybacks? 3. The new FORTUNE 500 Markets Closed
Year-to-Date
 Markets Slide as Trade Talks hit Thin Ice What looked like a turnaround rally for U.S. stocks was thwarted late this afternoon as reports that the U.S.-China trade talks have stalled, sending the DJIA down nearly 100 points.
Reuters and other news outlets reported that Chinese trade officials have indicated they are in no hurry to resolve the trade dispute given recent provocations by the United States, including the blacklisting of China telecom giant Huawei and its affiliates. On Thursday, the White House put Huawei on a list that U.S. companies are prohibited from doing business with, given allegations that Huawei has engaged in intellectual property theft.
In late 2018, Huawei's CFO was arrested in Canada on charges that the company had done business with Iran, thereby violating U.S. sanctions. She was later extradited to the U.S. to face criminal charges.
Context: Why the Arrest of Huawei's CFO Could Derail Trade Talks
The blacklisting of Huawei is the latest salvo in the U.S China trade war, which has only intensified in the past two weeks. On May 5th, President Trump ordered tariffs on $200 billion in Chinese goods to be increased from 10% to 25%.
China's Foreign Minister Lu Kang told reporters at a press briefing today that China is in no hurry to sit back down with U.S. trade officials , saying, "But because of certain things the U.S. side has done during the previous China-U.S. trade consultations, we believe if there is meaning for these talks, there must be a show of sincerity."
There was hope that President Trump and President Xi would cement an agreement at the upcoming G-20 meetings in late June.
That appears to be very much up in the air.  chart courtesy CNBC and International Trade Centre
U.S. Lifts Tariffs on Steel and Aluminum on Mexico and Canada This was going to be the good news trade story of the week until this afternoon. The White House announced this morning that it plans to lift tariffs on heavy metal imports from Canada and Mexico as part of the United States Mexico Canada Agreement (USMCA).
In a joint statement Friday, the Canadian and American governments said the U.S. will drop the metals duties within two days. Canada will remove tariffs levied on American goods in retaliation for the steel and aluminum duties. Here are the other key points of the agreement:
Where would we be without buybacks? It has been a very choppy two weeks for U.S. markets given the trade uncertainty, but the S&P 500 is still up 15% year to date. It has all but regained the losses of late 2018 and had reached a record high in the past several weeks on optimism about a trade deal and better than expected global economic growth.
chart courtesy tradingview.com  But Ned Davis Research has pointed out that stock buybacks - when a company buys its own stock on the open market - has accounted for a large chunk of the stock market's overall appreciation - as much as 19%.  S&P Global Market Intelligence estimates that companies may spend as much as $1 trillion on stock buybacks this year, after spending $806 billion on them in 2018.
Remember, stock buybacks reduce the supply of a company's available shares on the open market, thereby boosting the company's earnings per share. It makes a company appear more profitable than it actually is through its operations, although there is nothing illegal about it. Investors look to invest in companies with strong earnings growth, and buybacks artificially inflate that growth.
It is a hot-button issue in American politics right now, as many progressive politicians think companies should be using that extra money to pay their workers more, and invest in research and development and capital expenditures.
Read more: Why Buffett and Dimon Support Stock Buybacks
The companies that have spent the most on buybacks over the past 10 years:
You'll see a few of those names in our next story.  The New FORTUNE 500 Fortune Magazine revealed its 2019 list of the biggest companies in the world by revenue, yesterday. The top ten has been fairly consistent over the past few years, but we are seeing more healthcare companies break into it like CVS and United Health Group. It's always an interesting read.
Here is the top ten: Walmart
Charts courtesy of www.koyfin.com  Under Armour jumped more than 8% today, after a J.P. Morgan analyst cited "controlled confidence" in the company's leadership. The analyst upped his priced target for the company by $6 to $29, which is about $6 above its current price. Per Barron's the stock is already up about 30% this year.  Deere & Co fell nearly 8% today, as the company missed earnings estimates in its quarterly report, and lowered full-year guidance. In a prepared statement, CEO Samuel Allen said that "export-market access, near-term demand for commodities such as soybeans, and a delayed planting season in much of North America are causing farmers to become much more cautious about making major purchases." Translation: the trade war and a late planting season have farmers anxious. When farmers are anxious, they don't make big ticket purchases.  Stalls in negotiations in the middle of trade war will do this. Especially when the countries involved are the largest in the global economy.  photo courtesy Reuters
Word of the Day USMCA - United States Mexico Canada Agreement Given the news that the U.S. has reached a deal with Mexico and Canada today that will lift steel and aluminum tariffs, we thought this term was appropriate.
What is USMCA?
USMCA began as the U.S.-Mexico Trade Agreement, announced in late August of 2018. A few weeks later, on September 30th, 2018, the United States and Canada formally agreed to replace NAFTA with the new agreement, and the USMCA was finalized a few weeks later.  photo courtesy Beursgeschiedenis.nl
Today in History May 17, 1876 The Amsterdam Stock Exchange Association (Vereniging voor de Effectenhandel) is created by 465 Dutch brokers; from now on, only members of the association are allowed to trade on the exchange. (Of course, brokers have already been trading stocks in Amsterdam for nearly three centuries, but not as an exclusive private club.) Chart of the Day: Sterling Extends Sell-Off as Brexit Talks Collapse  The pound sterling has extended its sharp sell-off of the last two weeks as Brexit talks between the two major parties – the ruling Conservative Party and the Labour Party – have effectively ended in failure. The Labour Party's Jeremy Corbyn communicated on Friday that negotiations were over and Labour would continue to stand in opposition to Conservative Party leader and Prime Minister Theresa May's Brexit plan. Up to this point, the Brexit negotiation process has been rife with setbacks and chaos, as Theresa May has attempted three times without success to get her deal passed in Parliament.
Last month, the European Union granted the UK a substantial extension of the original Brexit deadline, to October 31, 2019. This extension also had a provision whereby the UK would be able to leave the EU earlier if the British Parliament is able to pass a Brexit plan. While the pressure on UK markets was far from lifted, at least they were afforded a bit of breathing room for the time being. Friday's confirmed failure in the extended negotiation process clearly does not bode well for the future of Brexit politics.
The chart above shows the GBP/USD (British pound vs U.S. dollar) chart. The U.S. dollar has been relatively strong of late, helping to weigh on the GBP/USD currency pair. But for the last two weeks, the sharp drop in the currency pair can be attributed in large part to increasing weakness in the British pound due to widespread skepticism over the parliamentary Brexit negotiations and Theresa May's viability as prime minister.
In the past two weeks, GBP/USD has fallen sharply from near the 1.3200 handle down to the 1.2700 price area (as of Friday). With any continued sterling weakness stemming from the breakdown in Brexit negotiations, the next major downside target currently resides around the key 1.2500 support level.
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Friday, May 17, 2019
The Trade Fade
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