[Sara Eisen] Let’s bring in Keith Lerner, Chief Market Strategist at SunTrust, and Terry Haines, founder of Pangaea Policy, for some of the market reaction to the President. Also the data out this morning. So Keith, are we reading into the jobs report? Are we reading into the tariff increase right now? What’s the market moving on?
[Keith Lerner] Yeah, I think it’s definitely the tariff side. I think it was important that the job numbers this morning were healthy. If you had a big miss, then that would have been a bigger concern, especially with the loss of momentum. But it’s all about trade right now.
The other thing is, you know, we’ve had a great start to the year. This is the best start of the first seven months of the year since 1997. And we were thinking, going into August, that it was going to be a choppier market, the seasonal trends are a bit weaker. And now we have the whole period of August where there’s going to be uncertainty on the tariffs and we don’t have the next Fed meeting until mid-September. That said, we still think that equities over the next 12 months is the place to be.
[Sara Eisen] Terry, what is this escalation going to look like? Do you expect the rates to go higher? Do you expect China to retaliate? Do you expect the ten percents to go into effect at all before September 1st, or at—
[Terry Haines] What I, well, what I—
[Sara Eisen] —at September 1st?
[Terry Haines] Well, what I expect, Sara, is a…you know, after an expression of seriousness by the President yesterday, you know, some sort of threat and proportional response by the Chinese, and we’ve seen a lot of this before. And then I think the United States is gonna look to see if China will actually start to make some movement on the things that the United States cares about. You know, the President put a lot of this out there yesterday. The President talked about initial moves on agriculture, which hadn’t been resolved, following through on promises to stop manufacturing fentanyl.
And fundamentally what the United States remains frustrated by—and I’m not here as a cheerleader for the government—but remains frustrated by is the Chinese lack of willingness to come to an enforceable agreement. In my view, the lynchpin of all this has been and continues to be enforceability. If the Chinese will agree to have an enforceable deal I think they’ll find the United States wanting to put a deal in place fairly quickly. Without that, though, what we’re gonna have, and I think what’s likely, is that the current trade war continues into 2020, ramped up a little bit more as a result of the President’s actions and the Chinese response.
[Carl Quintanilla] Terry, we can barely put together an ag purchase. I’m not sure—I mean, how…what’s it gonna take to get as far as you’re talking?
[Terry Haines] That depends entirely on the President Xi and the meetings of the politburo over the next couple of weeks when they take their annual retreat. But if one of the—another of the frustrations of the United States government has been that—and you can see this in the Chinese official press and the financial press—is the desire, is the belief that they can wait out the current United States position and that their economy is sufficiently good to be able to do that.
I think what the President’s trying to do here is frankly push them to get down to the table, get serious and get a deal done. You know, I think we see that in terms of timeline. I think we see that in the next two to three weeks, whether they’re willing to actually do that.
And as was pointed out a few minutes ago, I think that if the Chinese make some goodwill gestures to do the things they’d already said they were going to do, I think you’ll find the President interested in wanting to not only to continue negotiations, which he said yesterday, but also maybe to hold the tariffs off a little bit in order to facilitate the next meetings in September.
[Carl Quintanilla] Meanwhile, Keith, on levels, people have been watching 2950 as a marker that would determine whether or not we had a false breakout like last September. At least that’s the word from technicians. Are you worried about where we are right now?
[Keith Lerner] No, not broadly. I still think that the down side is probably limited to about five to seven percent. As far as sentiment got a little bit hot short-term, but the fund flows this year and over the last 12 months have been hugely negative. That’s not consistent with a major top.
The other thing is to think about now, we have this 10-year Treasury at 1.85%. We now have 50% of the S&P 500 names with dividend yields above the Treasury, so that should provide some support for the market as well. And, you know, we have to just get used to this ongoing carousel of concerns that we’ve been dealing with the last few years.
And, you know, if people have sell based on these tariff news, you have to just remember we just made a new high in the market last week, and we do expect some digestion, some back and forth, but later in the year we do expect to make new highs.
[Sara Eisen] Very quickly, Keith, I mean, the declines are sharper overseas. And you’re up right now, it’s a sea of red, more than 2% declines across the major averages, Hong Kong down 2% overnight, Japan down 2% overnight. Is this continued playbook of the US can weather this the best and so US equities are the best place to be?
[Keith Lerner] We still think the US is the best place to be. Some of what you’re seeing overseas is just a catch-up of the selloff late yesterday. But, I mean, as we’ve seen today, the US economy is still solid. Wage…employment is still solid. Wage growth is moving up. The consumer is 70% of the economy. One thing that’s missed is that the savings rate now for the consumer is at 8%. That’s about triple what it was heading into the 2000, 2008 recession. So again, yes, we think the US, the earning trends are better and we think that is the best place to still be going forward.
[Sara Eisen] Keith, Terry, thank you both. Have a great weekend.
[Keith Lerner] Thank you.
Courtesy of CNBC
Keith Lerner, Investment Adviser Representative, SunTrust Advisory Services, Inc.
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