Following the Martin Luther King holiday on Monday, stocks tipped of the week today by taking a hit with the Dow falling 300 points on the heels of disappointing fourth quarter earnings out of Halliburton and Stanley Black & Decker. More trade uncertainty with China and global economy fears added fuel to the fire.
So far this year, stocks have rallied off of the Christmas Eve low with the S&P 500 Index posting a gain of nearly 5% in January and recouping nearly 50% of the hit that stocks took in the fourth quarter of 2018. While we enjoy the recent recovery, though, the headlines continue to roll on…China, government shutdowns, worries about the Fed, rising interest rates, high frequency trading “machines” pressing the volatility gas pedal , and a slowing economy are all the buzz in TV teleprompters these days and Tuesday’s trading session reflected just that. Amidst the flurry of data being reported by the media, a wrench got thrown into the US/China negotiation game when The Financial Times reported that a trade-negotiation meeting between US and China officials was called off.
According to the report, information received by an undisclosed “reliable source” of The Financial Times prompted the headline stating: “The White House has uninvited two Chinese trade representatives, according to the Financial Times” On the news, the Dow Jones Industrial Average fell more than 450 points at its low for the day and what had seemed to be an increasing probability of a trade resolution between the two nations went up in smoke after that 14-word headline hit the new reels.
But, in late trading today, the market got it wrong, because the so-called “reliable source” of the Financial Times also got it wrong. 30 minutes prior to the closing bell, Larry Kudlow, the director of the National Economic Council, said in an interview on CNBC that there was "no cancellation" after media reports suggested that the United States had turned down an offer by Chinese negotiators to meet this week. Kudlow debunked the report stating that "with respect, the story is not true", underscoring the importance of the high-level meeting scheduled later this month as being "very, very important" and "determinative."
“There were no other intermediate meetings scheduled," said Kudlow on CNBC. "The story is unchanged. We are moving towards negotiations. We are in constant communication with the Chinese officials. I don't know where people got this idea."
Within minutes, after Kudlow’s comments, markets recouped and the Dow cut its losses by over 150 points.
Moments like these remind us that proper diversification and responsible investment strategies need to be in place when constructing investment portfolios and that timing the market by reacting to a headline like today’s from the Financial Times is a fool’s game. Investors need to focus on properly allocating assets, assessing risk, and implementing discipline when making investment decisions.
There will always be a wall of worry in the markets, but news headlines, whether they are properly reported or misleading and untrue, are not inputs that go into a disciplined, long-term investment plan.
(The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.)