Crucial information for the U.S. trading day
Blue chips on Friday managed to avoid their longest losing streak since 1978, putting an end to eight-straight down days with a triple-digit pop.
Everything’s fine, right?
Well, it’s true that the dreaded “trade war” has been more bite than bark so far, and investors have mostly treated it as such, with the recent stretch of selling hitting the Dow DJIA, -1.07% with a 3% drop from peak to trough.
But the trade tensions won’t be going away anytime soon. One look at the big-font headlines splashed across financial websites and blogs tells you all you need to know about what the prevailing theme is heading into the week.
Oh, and yes, the presidential feed isn’t about to let up either:
To find out, Barron’s asked Wolfe Research’s Yin Luo, former star quant at Deutsche Bank DB, -1.14% and longtime artificial-intelligence evangelist. He doesn’t see robots replacing money managers anytime soon, but he’s a big believer in the edge that machine learning can give investors. And those machines are firing off “trade war risk” signals.
“We have an algorithm that goes through every major media and social-media site, looking for key words related to trade conflict, like ‘trade tensions,’ ‘tariffs’ and ‘quotas,’” Luo explains. “It’s gauging the wisdom of crowds. Once people are talking about it, it is more relevant to stock performance. Today, [that chatter] is at its highest point since we started tracking these things in 2003.”
Couple political risks with rising interest rates and you probably don’t need a robot to tell you there are clouds hanging over this market.
“We are still bullish but warn investors that the downside risk is significant, which is different from last year,” Luo says. “We are at the peak point in the economic cycle, growth is showing some signs of weakening, and inflation continues to rise.”
So what’s an investor to do? In our call of the day, Luo says his models favor U.S. large-cap stocks, global real-estate investments trusts and gold.
“With U.S. stocks, we are bullish consumer discretionary, technology, and industrials over the medium horizon, and are negative on consumer staples and telecom services, where fundamentals remain relatively weak and momentum has been negative,” he says.
The market
The Dow Jones Industrial Average YMU8, -1.26% is poised to start another streak into the red, with futures down premarket. The S&P 500 ESU8, -1.25% and Nasdaq-100 NQU8, -1.74% are also looking toward a negative open.
Gold GCU8, +0.00% and WTI crude CLU8, -0.52% are little changed. Asian markets ADOW, -0.88% closed mostly lower, while Europe SXXP, -1.72% is taking a hit. In crypto, bitcoin BTCUSD, +1.64% is bouncing back after its latest drop.
Check out Market Snapshotfor more.
The buzz
President Recep Tayyip Erdogan, one of Washington’s key allies, won a victory in Turkish electionson Sunday, as voters extended his 15-year hold on power and endorsed his increasingly authoritarian model of government. “I would like to congratulate our nation once again,” he said.
Struggling conglomerate General Electric GE, -1.23% is about to ink a deal to sell a unit that makes large industrial engines to private-equity firm Advent International for at least $3 billion, sources told the Wall Street Journal. Word of an official deal is expected to hit as early as Monday.
Student housing developer Education Realty Trust EDR, +1.52% is being bought in a $4.6 billion all-cash dealby a Greystar-led fund.
Also see: Investors who paid attention to GE’s accounting saw trouble coming
The chart
This was always bound to be an issue for Trump and his administration, who have consistently trumpeted the surging stock market as a measure of policy success. So what happens when the selling starts, like it did last week?
