Published July 10, 2020
The Wall Street Journal’s excellent daily blasts: The Daily Shot and Real-Time Economics provide a quick overview of economic and market trends and data. We were struck by a set of charts in one of this week’s blasts from those sources. Coinciding with the news that the Chinese government had notably expanded measures aimed at supporting the Chinese stock market, these charts could be read as a broader initiative by China to sort of take global market share while the U.S. pulls back on the global stage. We are very far from geopolitical experts, of course, but we are pretty good at seeing trends (being trend-followers!). This looks like a trend in the making to us (or continuation of a bigger trend, depending on your time frame). Herewith are a series of China-related charts. May be the start of something bigger and longer-lasting.
We begin by looking at interest rates. Rising interest rates are indicative of increasing economic activity and/or inflation. Interest rates in China are rising fast, and now at relative highs compared to the U.S., where interest rates are stagnant at near-zero and appear likely to remain there for a long time. Inflation in China is at the lowest level in a decade. Rising interest rates with falling inflation suggests a relatively strong rebound for China compared to the U.S.
Which continues a trend where China’s economic strength (as a driver of Asia’s economy) now accounts for more of the world’s economy than the U.S., Europe, and Japan combined. The future is Asia and the future is here.
Back on the U.S. side of the Pacific, more of the same this week as the heat map from Thursday’s trade shows. Strength in the Nasdaq 100 (QQQ) components for the umpteenth time while almost all of the rest of the stock market sits and watches (mired in red on this day).
The resulting outperformance by the QQQ over the past five weeks is significant, and very much the continuation of the year’s story in stocks – investors can’t get enough FANGMA (Facebook, Amazon, Netflix, Google, Microsoft, Apple); while they shun most everything else, save for the occasional tepid embrace. This runaway train of divergent performance will end at some point, won’t it? See the QQQ in green below; the S&P 500 in red over those last five weeks.
We are thankful to be investors in QQQ!
Stocks traded in mixed fashion this week with the Nasdaq continuing its upward march while other indexes showed less thrust. Stocks leapt +1.6% Monday with China’s stock market surging more than +5%. The Chinese government appeared to show support for the country’s stock market, thus encouraging investors to take risk. Tuesday brought a -1.1% step back, however, on a weak German economic report with United Airlines (UAL) also issuing a downward outlook. The positive Chinese trade returned Wednesday with a +0.8% lift. Thursday brought a bifurcated market with the tech/consumer heavyweights pushing the Nasdaq higher while the broader market slipped back -0.6%. There is little new information pushing stocks day to day until earnings start rolling in next week. Friday saw a +1% rise in stocks after a poor start. Indeed interest rates began the day tumbling to their lowest levels in two months before buyers swooped in to turn the slide into a gain for yields. Stocks likewise reversed higher to rally in the last couple of hours of trade.
A wobbly week early on ended with a solid close as the S&P 500 (SPY) rose +1.72% for the week. The Nasdaq 100 (QQQ) cruised to a +4.67% gain. Small-cap stocks (IWM) slid -0.77%.
Warm wishes and until next week.