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This is what moves markets: Morning Brief

Myles Udland
Markets Reporter

Thursday, September 26, 2019

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Trade

Saying trade news moves markets isn't breaking news. Market declines in May and August were the result of heightened trade tensions. Rebounds in June and September followed as tensions eased.

This is a pattern that has repeated on daily, weekly, or monthly cycles for the better part of two years now.

But after two of the most eventful days of Donald Trump's presidency, it is worth reiterating what does and does not hold sway with investors.

Because this market is still all about trade. First, second, and last.

On Wednesday, stocks rallied after several encouraging pieces of trade news. Near 10:00 a.m. ET, Rep. Richard Neal (D-MA) said that work to pass the USMCA would not be impacted by impeachment proceedings. About 45 minutes later, Trump said that there could be a U.S.-China trade deal sooner than people think. And early afternoon on Wednesday, the administration announced it had reached an initial trade agreement with Japan.

The S&P 500 finished Wednesday's session up 0.62% with the rotation back into cyclical sectors like banks, industrials, and consumer discretionary stocks continuing apace. Investors, by and large, still seem convinced the U.S. economy will not enter recession and that an impeachment inquiry into the sitting president will not change this story.

Now, Tuesday's market decline was broadly linked to news that House Democrats would announce an impeachment inquiry. But even this slide was somewhat curtailed when Trump tweeted on Tuesday afternoon that a record of his call with Ukrainian President Volodymyr Zelensky would reveal a “totally appropriate” call.

On the impeachment issue, it seems markets staked out a clear and early willingness to look past a political nightmare.

(UNITED STATES - Tags: BUSINESS)

My colleague Sam Ro noted late Tuesday that the market's past experience with impeachment proceedings against presidents in modern times have seen stocks driven by the economy and not the political environment.

During the Nixon episode in the '70s, oil shocks, stagflation, and the deepest recession that had been seen in decades drove stocks lower. Clinton's impeachment drama in the '90s came alongside Russia's default, the implosion of Long Term Capital Management, and the final years of the tech bubble.

And while financial market analysis that works to divorce itself from politics can at times be reductive, what the market's behavior during Nixon, and Clinton, and this week makes clear is that while the words sound the same, policy and politics are not the same thing.

The stock market rally that followed Trump’s election was about investors pricing in lower corporate tax rates and increasing government spending from infrastructure investments. The tax cuts came through. Infrastructure did not. The post-election rally was about policy, not politics.

Over the last year, the S&P 500 has struggled more than it did in the year that followed the election and the benchmark index is up just 2%. The fourth quarter of 2018 saw the first 20% correction in seven years. This period has been defined by the U.S.-China trade war, which is now a permanent part of the daily market narrative. Fears about recession and missteps from the Federal Reserve have added to market stress over the last year. But these fears are policy-based, not politically charged.

And so time and again investors have reacted to actual or expected changes in government policy. It is only in rare cases, for brief moments, that politics become a market mover.

By Myles Udland, reporter and co-anchor of The Final Round. Follow him @MylesUdland

What to watch today

Economy

  • 8:30 a.m. ET: GDP, Q2 (2.0% expected, 2.0% prior); Personal Consumption, Q2, (4.7% expected, 4.7% in Q1); GDP Price Index, Q2 (2.4% expected, 2.4% in Q1)

  • 8:30 a.m. ET: Core PCE quarter-on-quarter, Q2 (1.7% expected, 1.7% in Q1); Wholesale Inventories month-on-month, August preliminary (0.2% expected, 0.2% in July)

  • 8:30 a.m. ET: Initial Jobless Claims, week ended September 21 (211,000 expected, 208,000 prior); Continuing Claims, week ended September 14 (1.666 million expected, 1.661 prior)

  • 9:45 a.m. ET: Bloomberg Consumer Comfort, week ended September 22 (62.7 prior)

  • 10 a.m. ET: Pending Home Sales month-on-month, August (1.0% expected, -2.5% in July)

Earnings

  • 4:05 p.m. ET: Micron (MU) is expected to report adjusted earnings of 48 cents per share on $4.56 billion in revenue, according to analysts polled by Bloomberg.

  • Other earnings reports: ConAgra Brands (CAG) and Rite Aid (RAD) before market open

From Yahoo Finance

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Top News

US President Donald Trump holds a press conference in New York, September 25, 2019, on the sidelines of the United Nations General Assembly. - Trump on Wednesday called the grounds for his impeachment laid out by Democrats "a joke," after he was accused of pressuring his Ukrainian counterpart for domestic political reasons. "When they look at the information, it's a joke. Impeachment for that?" Trump told a news conference. (Photo by SAUL LOEB / AFP) (Photo credit should read SAUL LOEB/AFP/Getty Images)

Trump impeachment inquiry could kill the USMCA [Yahoo Finance]

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