foxex: About Face

The Market Sum | Insight after the bell

By James Early

Monday's Headlines

1. Markets Pull an About Face

2. Trump and Xi Friends Again

3. Corporate Leaders Selling (Lots of) Stock

4. Oklahoma Judge Asks for $572 Million from J&J

5. Goldman Sachs Says Housing Will Rebound

Markets Closed

Dow
25,898.83 +1.05%

S&P
2,878.38 +1.10%

Nasdaq
7,853.74 +1.32%

VIX
19.72 -0.75%

Bitcoin
$10.292.70 -0.89%

US 10-Yr Yield
1.545 +1.11%

Markets Today

S&P 500 up 1.10%
Nasdaq up 1.32%

Easy go, but at least easy come back.

Last Friday's tariff-and-twitter skirmish left the markets on a down note about the U.S.-China trade war. Fortunately, the tune changed over the weekend and, thus, so did the markets today. Chinese Vice Premier Liu He responded not with barbs or further tariffs, but by emphasizing China's interest in calm, cooperative solutions. And Trump, in turn, gushed some praise for "great leader" President Xi Jinping, and said "I think we are going to have a deal."

Some think Trump, who also mentioned, "I'm not sure they have a choice," went too far by claiming that the U.S. and China had had phone calls that at least the Global Times (the national tabloid of China, and known for inflammatory rhetoric) denies. Mixed messages aside, the market was up because today's happenings were a lot better than Friday's.

Great as today was, Wall Street economists are less optimistic. In a research note issued Sunday, Morgan Stanley chief economist Chetan Ahya cautioned about a trade war-inspired slowdown in global growth. Morgan Stanley's predictions are for 2.7% GDP growth now, and possibly 2.5% or worse if 25% tariffs get implemented by the U.S. and matched by China. Of course, 2.5% would look pretty good to most developed economies these days.

Speaking of an about face: Overstock shares are back down 15%. Market Sum readers may remember that Overstock rose last week on news that controversial CEO Patrick Byrne was resigning. They're down today on news that interim CEO Jonathan Johnson will continue Byrne's push to divest Overstock's namesake retail business and turn the company into a cryptocurrency company after all.

Graphic credit: CNBC

Trump and Xi: Friends Again, Thanks to Liu He

China. China. China.

Yes, it seems all the market-moving news is related to China these days. But, that's because, well, it almost is. Luckily, the China news took a sudden turn for the better today. Recall that Friday's selloff came after China announced new tariffs, timed to steal the thunder from Fed Chair Jerome Powell's speech. Trump responded with increased tariffs, a threat to pull American companies out of China, and a reference to Xi Jinping as an "enemy."

Weekends, apparently, are for cooling down.

Speaking from a conference in Chongqing, China, Vice Premier Liu He said, "We are willing to resolve the issue through consultations and cooperation in a calm attitude, and resolutely oppose the escalation of the trade war."

Trump echoed the positivity—enhanced it, in fact—by tweeting, "Great respect for the fact that President Xi and his Representatives [sic] want 'calm resolution' ... This is why he is a great leader & representing a great country. Talks are continuing!"

For investors, this is a world better than last Friday, so the market move is not surprising. But it's interesting how much—and how quickly—people's lives and portfolios are affected by the words of (literally) a few people.

Photo credit: Chip Somodevilla / Getty Images

Corporate Insiders Dumping Stock

TrimTabs Research notes that American corporate insiders have sold an average of $600 million in stock per day in August, the most selling since the bull market began, and a level last seen in 2006 and 2007, before the Great Recession. August will be the fifth month of 2019 with more than $10 billion in insider sales, which, according to TrimTabs was also a characteristic of pre-recession insider behavior (although readers should remember that the market is larger now).

This doesn't necessarily mean insiders see disaster ahead. Legendary investor Peter Lynch once said: "Insiders might sell their shares for any number of reasons, but they only buy them for one: They think the price will rise." At a minimum, then, we have a lot of insiders who don't think prices will rise.

Judge Orders Johnson & Johnson to pay $572 million for Opioid Settlement

Johnson & Johnson was the last company standing in the Oklahoma attorney general's lawsuit against companies involved in the opioid crisis. Purdue Pharma and Teva Pharmaceutical, for example, both reached settlements instead of dealing with the trial. Fighter J&J claimed that it makes less than 1% of opioids used in the U.S., so it felt improperly targeted for its deeper pockets. The stock is down about 1.25% after hours, likely reflecting that the judgment was higher than what analysts predicted, but not wildly so.

From a shareholders's vantage point, here are two ways to look at this verdict: On one hand, Oklahoma wanted $17 billion, so $572 million is a fraction of that. On the other hand, Oklahoma is just the first state to advance this litigation, so J&J and its brethren may have 49 others to deal with.

Housing Will Rebound: Goldman Sachs

We talk about the global economy. We talk about stocks. We talk about bonds (sometimes). But housing is most folks' biggest investment, and as Goldman Sachs notes, the decline in residential investment the first half of 2019 has understandably rattled homeowners, at least those who read economic news, because the decline came on the back of a 125-basis point drop in mortgage interest rates over mostly the same time period. Normally, as you might expect, lower rates mean more investment.

Don't worry—at least not too much—Goldman says, for three reasons. First, there's a lag to lower rates actually stimulating home purchases. Second, Goldman sees some data points changing for the positive already. Third, the lower rates are prompting refinancing, which at least benefits the economy by injecting money into homeowners' pockets.

Goldman notes headwinds: Reduced regional tax incentives for home ownership, a shortage of construction labor in many markets, and a rise in land, construction, and regulatory costs for homebuilders. But on balance, the bank expects a sharp rebound to a 4% gain in residential investment for the second half of 2019, bringing housing's contribution to U.S. GDP from negative five basis points in the first half of this year to positive 15 basis points. If they're right, this will be very good news.

Interestingly, real estate has been the top-performing equity sector over the past year, as shown below in the graphic from Charlie Bilello.

Programming note: The Market Sum will be guest written until August 28th while Caleb is out for a little summer fun with his family.

More News:

Trade War Seesaw Continues As National Emergency Worry Emerges

Short Bets Against US Market Rise $2.7 Billion in Volatile August

Dell in Full Retreat Ahead of Earnings

chart courtesy www.koyfin.com

Shares of Salesforce.com rose by over 2% after its Q2 earnings and revenue beat market estimates. Newmont Mining's stock price climbed more than 2% higher today, following an increase of the company's short interest.

L Brands maintained its top spot from yesterday—its stock price having actually fallen further to over 9% today—following market analysts singling the continued struggles of Victoria's Secret as the main thing dragging its parent company down. Shares of Hasbro decreased by almost 9%, amid the company dropping $4 billion to buy Entertainment One, although a D.A. Davidson note on the purchase posited that the drop might have been overdone.

Although many countries suffered today, India actually did alright for itself, even when compared to the other three victors. Meanwhile, there were no winners in Europe and the Americas, with Brazil taking the heaviest loss.

Word of the Day:

Insider Trading

Insider trading is the buying or selling of a publicly traded company's stock by someone who has non-public, material information about that stock. Insider trading can be illegal or legal depending on when the insider makes the trade. It is illegal when the material information is still non-public.