September has been the weakest month for equities over the past 50 years. The S&P 500 Index has shed an average of -0.7% with only 44% of Septembers showing a gain. Losses tend to be dominated by the last two weeks of the month as investment managers reallocate portfolios ahead of the end of the quarter. Between September 19th and the last day of the month the S&P 500 Index has lost an average of -0.93%. The period has typically been the ideal time to buy after the sell-off allowing investors to add to positions for the strength that is common from November – December.
Industrial production in the US has been below the 20 year seasonal average in 2019 and the Trump administration is taking notice. Over the past 80 years, whenever industrial production has lagged its average trend ahead of the presidential election, the incumbent party has lost control of the White House in every election year. Voters are sensitive of the strains in the economy and will tend to vote for change when the status quo is not working for them. Should the path of industrial production remain below average through the final months of the year, history suggests that the Republican Party will lose control of the White House.
President Trump appears to be backing off his aggressive stance with China as business investment slows and signs emerge that the trade war with China is hindering trade activity as businesses delay spending and take a wait-and-see approach before moving forward. Trump doesn’t want to shoot himself in the foot and risk the stock market crashing right before the 2020 election because of the escalating trade war with China. Trump keeps appeasing his supporters with China wants to trade tweets but that is only going to work for so long.
Google searches for the term recession have spiked to the highest level since December of 2008 as the Democrat controlled media and Federal Reserve conspire to make Trump a one-term President. With an escalating tariff war and a yield curve in inversion, the Establishment’s plan to boot Trump out of office is on track. Smaller non-corporate media outlets rally behind the President and so each side is battling for the public’s mind in the information wars creating this push and pull trading action throughout the past four weeks.
I have a pending transfer to get out of gold next week. Trump is being dishonest about the China trade war and I think that means he’s caving under the pressure of corporations and Republican politicians. It’s looking like Trump is trying to get a deal done so the economy doesn’t go into a recession before 2020 election. He’s calling the Chinese, not vice-versa as he lied about at the G7 last week. He’s trying to salvage a deal without looking like he was out negotiated by the Chinese and that he caved.
The slide in business activity is not out of control yet. Most likely outcome is the Trump administration bows to demands of businesses and works a deal with China that is better than what we currently have. Trump will spin as a victory, even though he caved. China will spin as Trump caved on his demands. If he does this, equities run higher and then the Fed maybe steps back on lowering rates, a scenario which would be negative for gold.
In this week’s show, we discuss President Trump and the trade war with China, plus several stock picks that look like compelling buys.