Posted | by David Moenning |

The stock market reacted positively Tuesday as everyone in the spotlight seemed to say all the right stuff. However, today is another day and traders appear to be moving on.

Tuesday began on an upbeat note following remarks by Xi Jingping regarding China's willingness to open its markets to trade. Speaking at an Asian economic conference, the Chinese President said his country planned to lower tariffs on imported autos, open trade to allow products his country wants, and pledged to enforce laws to protect the intellectual property of foreign companies.

President Trump responded by thanking his Chinese counterpart for his kind words.

Just like that, the market narrative went from concerns about the global economic impact of a trade war, to "what trade war?" And with Xi's words seen as conciliatory, traders moved on.

Next up was Mark Zuckerberg. The Facebook (NYSE: FB) founder and CEO was grilled by 44 senators in the first of two hearings on Capitol Hill over the company's use of data, potential regulation, and whether or not the company represents a monopoly.

Reviews of Mr. Zuckerberg's performance were generally positive. Some even called the CEO's handling of questions masterful. However, others said it looked like Zuckerberg would rather be having a root canal.

Traders rewarded FB with the biggest gain in a year as the stock surged $7.1 or 4.5%.

In what appeared to be a sigh-of-relief move, the major stock market indices finished well. The S&P 500 was the laggard with a gain of 1.67% while the Dow rose by 1.8% and the tech-heavy NASDAQ climbed 2.07%.

The bulls argued that there was a sea change afoot. Exhibit A was the fact that stocks had risen in five of the last six sessions. However, the bears provided a less optimistic response, pointing to the lackluster volume and the fact that none of the major indices had broken free from the nearly three-week old trading range.

Up Next...

Which brings us to this morning, where it appears the mood has shifted - thanks to a new round of headlines.

Once again, the headlines involve the President of the United States. But this time, it isn't about trade, the FBI's purported "witch hunt," or a former porn star. No, this morning, the headlines are about the threat of missles being fired at Syria in response to President Bashar Assad's alleged use of chemical weapons on his citizens over the weekend.

The market quickly moved to a "risk off" mode this morning after Trump tweeted that Russia should "get ready" for missiles to strike Syria. The key here is to recognize that Russia supports Assad and denies the reports that chemical weapons were used.

The Trump administration is working hard to rally support for a possible military strike against Syria. The problem is that a broad-based attack on Syrian strategic sites could impact Russian installations as well. And, of course, Russia says this would be viewed as an act of aggression.

In fact, Russia has vowed to shoot down any and all missiles fired at Syria. To which, Trump responded by tweeting, "Get ready Russia, because they [missiles] will be coming, nice and new, and smart! You shouldn't be partners with a Gas Killing Animal who kills his own people and enjoys it!"

In response to the escalating rhetoric with Russia, stock futures are down, bond prices are rising, the Russian Ruble is hitting a 16-month low, and the price of oil is movin' on up.

On the Inflation Front...

While the market is clearly being driven by headlines, we did get some important fundamental data this morning. Headline CPI fell by 0.1% in March, which was below the consensus for an unchanged reading and last month's gain of 0.2%. It is also worth noting that the March reading represented the first decline in 10 months.

When you strip out food and energy, the so-called "core" CPI was up 0.2%, which was in line with expectations.

On a year-over-year basis (i.e. the annual change), headline CPI sports a gain of 2.4% while the core is up 2.2%.

Analysts note that a drop in gasoline, commodities, apparel, and transportation caused the decline in the headline inflation number and that the softness is likely to be temporary.

Market Reaction

The reaction in the markets to the CPI data was, well, nothing to speak of. This suggests that either (a) traders are focused completely on the geopolitical situation or (b) the data doesn't move the needle on Fed expectations.

In closing this morning, let me add that the current environment continues to be headline/news-driven. And unless/until any of the various headlines impact the overall economic picture, it is probably best to remember that these types of environments tend to create weakness in stock prices that, while seemingly painful in the short run, are relatively short-lived from a big-picture perspective.

Thought For The Day:

Can you live in that moment... with clear eyes & love in your heart, with joy in your heart? If you can you're perfect. -Friday Night Lights

Wishing you green screens and all the best for a great day,

David D. Moenning
Founder, Chief Investment Officer
Heritage Capital Research

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At the time of publication, Mr. Moenning held long positions in the following securities mentioned: none - Note that positions may change at any time.


The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning's opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report is for informational purposes only. No part of the material presented in this report is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any investment program.

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