 The Market Sum | Insight after the bell
By Caleb Silver, Editor in Chief Monday's Headlines 1. U.S. Markets Rise on Trade Truce 2. Huawei Sales Ban Eased
Markets Closed
 Global Markets Rise on Trade Truce
By now, you are probably aware that the U.S. and China agreed to a trade truce at the G20 Summit over the weekend. While that doesn't mean that the existing tariffs will be lifted, it does mean that the additional 25% tariff increases that the U.S. threatened to levy on China will not be going into place. It's unclear what concessions the two superpowers wrung out of each other to get the talks "back on track," as President Trump proclaimed them to be, but both countries described the progress in positive terms. That was enough to boost the Shanghai Composite 2.5% overnight and tip the S&P500 to a new closing high.
What Now for the Markets? After a blistering start to 2019, the best in 20 years, many investors may be wondering what's next for markets? Is the good news from the trade truce and potential rate cuts from the Fed already baked in? Today's rally, which was very predictable, may not be that reliable of an indicator given historical performance. Ryan Detrick of LPL Financial, charted U.S. equity market performance after double-digit percentage rallies for the first half of the year. Not surprisingly, the second half has a hard time keeping up. Both the median and average returns underperform the first half returns, and the median and average pullbacks are steeper.
Does that mean we can can expect this pattern to follow for the second half of this year? We have no idea...but the historical perspective is interesting.  Huawei Sales Restrictions Eased One of the trade concessions we are aware of is that the U.S. agreed to ease the ban of U.S. sales of telecom equipment to China's Huawei. The Treasury Dept. had imposed the ban on May 21st, citing Huawei as a National Security Threat. The U.S. Commerce Dept. is scheduled to meet this week to determine the specifics of what can and can't be sold, but semiconductor stocks really liked this news today. (James has more on the chip sector in our daily chart, below.)
Huawei bought more than $11 billion worth of semiconductors and equipment last year, according to BofA. Its biggest suppliers with the most exposure include:
5G, or not 5G? The devil is in the details, as they say. If the U.S. Commerce Dept. allows the full-scale sale of components to Huawei - including 5G components - these companies, which were hurt when the ban was initially put in place, are back in business. But, if the Commerce Dept. extends the ban of 5G related equipment to Huawei, their pain may linger. Remember...the coming 5G wireless network will be the gateway to unlocking everything from the Internet of Things (ioT) to smart cities. The companies that control that network will have a lot of influence.
 The Other Trade Deals
While most of the media was focused on the U.S.-China trade negotiations, the European Union had a very busy weekend in Japan, inking its own trade deals with South America and Vietnam.
The EU and Mercosur, which consists of Brazil, Argentina, Uruguay and Paraguay, (Venezuela is part of Mercosur, but has been suspended since 2016), agreed on a trade pact that eliminates 4 billion Euros worth of tariffs. It opens up the EU markets to greater quantities of South American imports like beef, poultry and sugar, while reducing tariffs on European goods like wine and automobiles. It also paves the way to make it easier for the EU to source raw materials from South America for industrial production.
The pact faces intense scrutiny from environmental groups, who claim that opening up the Mercosur markets to even greater industrial production will exacerbate deforestation and labor abuses. The EU Parliament still needs to vote to pass the deal, which has been in discussion for the past 20 years.
Vietnam Vietnam had a very busy weekend. Its leaders signed a landmark trade deal with the EU that will reduce tariffs on 99% of goods. The European Union has described the EU-Vietnam Free Trade Agreement (EVFTA) as "the most ambitious free trade deal ever concluded with a developing country." Per Reuters, Vietnam has already signed about a dozen free trade pacts, including an 11-country deal that will slash tariffs across much of the Asia-Pacific, known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
A couple of key points:
P.S. Vietnam was already the fastest growing country in the region before last weekend's agreements were signed.
chart courtesy AsiaBriefing  The Longest Economic Expansion in U.S. History
Another record has fallen. The U.S. is now in the midst of its longest economic expansion on record, clocking in at 121 months, according to the National Bureau of Economic Analysis.
Records like these are meaningless to most individual investors. They don't give us an edge or a make our decisions any easier. They do, however, give us historical context that we can use as data points in our decision making.
At 121 months, or a 10 years and a month, this expansion, aided and abetted by an accommodating Federal Reserve that has kept interest rates low while pumping $2 trillion into the economy via quantitative easing, is feeling pretty long. Many say we are due for a recession, since we typically have one every five years or so, on average.
That doesn't mean we will get one. History does not have to repeat itself, and we are living in peculiar times.
That said, the U.S. Treasury market is telling us that the economy is softening via inverted yield curves. Companies are also bracing for leaner economic times ahead, which we see through their forecasts. Will those factors be enough to slow the economy into negative growth?
Unfortunately, we won't know it until it happens or just after. That's the way it works. In the meantime, enjoy the record. 
chart courtesy www.koyfin.com  Chipmaker and semiconductor stocks were up today as President Trump and Chinese President Xi Jinping agreed not to impose new tariffs on U.S. and Chinese goods. Wynn Resorts was up nearly 6% today after the Macau gaming authority said that gambling revenues were better-than-expected in June.  The cosmetics distributor Coty fell more than 13% today after releasing its turnaround plan which included spending north of $600 million in the next four years to 'rediscover growth.' Boeing fell another 2%, following news of regulators finding a problem with the the 737 Max's in-flight control chip, as we mentioned Friday.  Word of the Day According to FactSet, 77% of companies that have issued earnings per share guidance have warned that their numbers will be worse than Wall Street analysts expect. Analysts' earnings estimates have not been that optimistic, either. Regardless, earnings estimates are used to gauge how well a company is expected to do, and if a company misses those estimates, it usually spells a drop in stock prices.
"An earnings estimate is an analyst's estimate for a company's future quarterly or annual earnings per share (EPS). Future earnings estimates are arguably the most important input when attempting to value a firm. By placing estimates on the earnings of a firm for certain periods (quarterly, annually, etc.), analysts can then use cash flow analysis to approximate fair value for a company, which in turn will give a target share price."  Today in History July 1st, 1934 - The U.S. Securities & Exchange Commission (SEC) officially begins its business of regulating the nation's financial markets.
Museum of American Financial History (www.financialhistory.org) Chart of the Day: Semiconductors Pop on Trump-Xi Truce  As we noted last week, investors in semiconductor stocks were cautiously optimistic that a U.S.-China trade deal may have been just around the corner, ahead of the meeting between Chinese President Xi and U.S. President Trump at the G-20 meeting in Japan over this past weekend.
Turns out their optimism didn't go unrewarded. Though no deal was actually struck, the two presidents agreed not to implement any new tariffs for the time being as trade negotiations continue. Trump also indicated that he will ease the U.S. ban on exports to Huawei, the Chinese telecommunications giant. Short of an actual trade deal, this was exactly the type of news that the U.S. semiconductor industry was hoping for, especially since chipmakers like Qualcomm, Intel, Broadcom, Micron, Nvidia and the like, are highly dependent on the Chinese market to sell their products.
As shown on the chart above, the VanEck Vectors Semiconductor ETF (SMH) gapped up sharply on Monday's open, rising more than 5% to approach the 116.00 level at one point during the trading day before pulling back sharply and closing the day up less than 3%. Though the upside gap was not even close to being filled to the downside, the subsequent lack of any bullish follow-through puts into question the strength and integrity of the rally. After all, though the major semiconductor companies should indeed benefit from better U.S.-China trade relations, the fact is that the situation remains highly volatile and there's nothing truly concrete on the table as of yet.
From a technical perspective, the near-term direction for SMH, and for chipmakers as a whole, will depend to a certain extent on whether price drops to fill Monday's gap or breaks out above the 116.00 high in the shortened trading week ahead. Any upside break could then target April's record high above 120.00 once again.
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Monday, July 1, 2019
Truce
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