Weekly Edge: All Eyes On The U.S. And China

|
Includes: DDM, DIA, DOG, DXD, EEH, EPS, EQL, FEX, FWDD, HUSV, IVV, IWL, IWM, JHML, JKD, OTPIX, PSQ, QID, QLD, QQEW, QQQ, QQQE, QQXT, RSP, RWM, RYARX, RYRSX, SCAP, SCHX, SDOW, SDS, SFLA, SH, SMLL, SPDN, SPLX, SPUU, SPXE, SPXL, SPXN, SPXS, SPXT, SPXU, SPXV, SPY, SQQQ, SRTY, SSO, SYE, TNA, TQQQ, TWM, TZA, UDOW, UDPIX, UPRO, URTY, UWM, VFINX, VOO, VTWO, VV
by: Invest With An Edge
Summary

Optimism about the world's two largest economies reaching a trade agreement is palpable in markets around the globe.

Sectors as diverse as whiskey and appliances have been stifled by the U.S.-China trade war, reports Market Watch.

While businesses of specific sectors await negotiations to progress this week, some economists believe there's no reason to celebrate even if the U.S. achieves its objectives.

By Ansh Chaudhary

Optimism about the world's two largest economies reaching a trade agreement is palpable in markets around the globe. The pan-European Stoxx-600 rose about 0.3% Wednesday morning with many sectors and major indexes in positive territory, according to CNBC. Positive sentiment was also widespread among Asian stock markets. CNBC reports the Shenzhen composite gained 1.87%, the Shanghai composite closed 1.84% higher, and Hong Kong's Hang Seng index gained more than 1%. Japan's Nikkei 225 and South Korea's Kospi were up 1.34% and 0.5%, respectively.

Dow Jones Industrial Average Futures were up 80 points this morning on news that midlevel officials began a round of negotiations Monday at China's Commerce Ministry. A high-level U.S. delegation is scheduled to hold two days of talks with Chinese Vice Premier Liu He and his entourage. Investors are hopeful for either an agreement or extension of the March 1 deadline. The WSJ reports U.S. tariffs on Chinese goods worth $200 billion will increase to 25% at 12:01 a.m., March 2, significantly up from the current 10%.

Sectors as diverse as whiskey and appliances have been stifled by the U.S.-China trade war, reports Market Watch. Growth of U.S. exports of American whiskey was about 28% from January to June 2018. "Following the imposition of the retaliatory tariffs, these exports decreased 8.2%," says the Distilled Spirits Council. U.S. imports of appliances also took a hit in January, with Samsung Electronics (OTC:SSNLF) and LG Electronics (OTC:LGEAF) slashing shipments by about 85.7% and 97.0%, respectively.

While businesses of specific sectors await negotiations to progress this week, some economists believe there's no reason to celebrate even if the U.S. achieves its objectives. The U.S. stock market has outperformed during times when the trade deficit has widened and vice versa, says MarketWatch. The chief investment strategist of the Leuthold Group explains that the rise of imports indicates domestic consumption is healthy, while the rise of exports means foreign economies are doing well. This is contrary to the rhetoric spread about countries taking advantage of the United States. Regardless, all eyes will be on the U.S. and China for the rest of this month, as business around the globe continues to be impacted by this dispute.

Sectors: The average momentum score for the Sector Benchmark ETFs decreased from 28.18 to 26.09. Although none of the sectors are "in the red," seven out of the 11 sectors saw a decrease in momentum score. Energy and Telecom had the two biggest decreases in momentum score, down 13 and 11. Telecom jumped from the top position to the middle of the pack. Utilities saw the biggest increase in momentum score, going up by 10. It remains at the bottom of the list, however.

Factors: Among the Factor Benchmark ETFs, the average factor score decreased from 30.58 to 29.58. High Beta remains in the top spot despite falling 5 points for the week. Following High Beta is Small Size and Growth, which remain in the second and third positions. The lagging factors continue to be Low Volatility and Yield.

Global: The average Global Benchmark ETF momentum score decreased from 40.64 to 29.09 for the week. Momentum in the global sector decreased across the board for each region. China overtook Latin America for the top spot, despite decreasing 14 points in momentum score. The EAFE, Eurozone, and Japan remained in the bottom three positions.

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.