By all accounts, Monday probably should have been a down day. After rallying for five straight days and then stalling on Friday, it appeared that all the bears needed was some sort of a trigger to knock their opponents back from whence they came. So, with talk of trade wars and protectionism sending the global markets lower Monday morning, it looked as if the bulls – like Roger Federer – might have met their match.
While the bickering over tires between the U.S. and China got most of the attention in the pre-market, there was plenty of negativity to go around. There was talk about how the weak dollar, which by the way, seems to make new 52-week lows with regularity of late, will weigh on the global recovery. There were comments from Moody's regarding bank losses in the U.K. There was some angst over what the President might say on Wall Street. And there was a good deal of red ink in the foreign markets.
So, not unexpectedly, stocks opened to the downside and before you could hit the mute button on the remote, the Dow was down 70 points. At this point, the technically inclined were busy measuring the morning's low against the late-August highs and gauging the potential for the dreaded breakout fakeout. But as has been the case lately, the dip buyers showed up for no real reason and saved the day.
Well, okay, while they weren't headline grabbers, there may have been a couple of decent reasons to hit the buy button besides the brief encounter with red numbers. First off, there was some new M&A speculation and we all know how Wall Street loves their M&A deals. The London Telegraph reported that Deutsche Telekom (DT) had retained advisors to explore a transaction with Sprint Nextel (S), which was up 10.1% on the session. In addition China Investment Corp is talking about taking a stake in AES Corp (AES). And speaking of utilities, the group was one of the day's best performers after getting some kind words over the weekend in Barron's.
In addition, with all the talk of protectionism and the potential for a trade war with China, somebody put a pencil to the situation and discovered that tires account for less than one-tenth of 1% of China's total exports. Thus, it would appear that the tariff imposed was more of a minor gripe than the start of a serious argument.
So, while the bears definitely had an opportunity yesterday, they once again didn't do anything with it as the bulls were able to push the S&P, NASDAQ, and Russell to another batch of new cycle highs.
Turning to this morning, we've got a host of economic data to sift through, so let's get right to it. The August Producer Price Index came in with a gain of +1.7%, which was higher than the consensus for +0.8% and July's -0.9%.
