The price you pay from an increase in tariffs regarding metals or China, or any of the escalation on Chinese products, will be dwarfed by the shifting fortunes of the markets during the summer that's unnoticed. It is also accompanied by debating whether we're long-cycle in recovery, or not. Actually interest rates are not at a level to impede business activity in any significant way; but they can play havoc with credit markets.

It's not so much the shifting fortunes related to a presumed process mostly of 'negotiation' on trade (which is exactly why it's unsuccessful since the majority on all side expect someone to blink and that it's not really serious) as important as that it. And for sure, we hope calm minds and negotiations prevail, at least by the time it's sorted out.   

This is one area where the USA has been taken advantage of; as earlier I have often explained why it was allowed; to build the postwar era and in a sense promote 'commerce' sufficiently to deflect socialism's ambitions too.

And someone innocently, which is why I forewarned decades ago of risk of 'dismantling America' in so many ways; since too much of a good thing (in this case the benevolent help to former enemies and building a bulwark to Soviet expansionism, and later the opening of China) can backfire on you.

Now, while the 'trade skirmishes' we're having now can backfire broadly it's not simply because anyone 'really' believes old industrial style US business will be fully rekindled. Rather it's to even out trade imbalance relationships, giving American companies at least a reasonable chance. In a sense there's another aspect (particularly with China) that truly matters and that of course is 'Intellectual Property' exploitation, which is rampant. I need not delve into it beyond pointing out that's more key than superficial discussions costs to consumers of basic inexpensive Chinese imports.  

Reallocation is really what I was driving at with regard to shifting fortunes. 

Later this summer we get more than the typical realignment of portfolios in the ETF and Index realm; primarily because of introduction of new sector funds and reclassification of some major companies presently in the IT classification, which now will be called 'communication' stocks. Foremost among these are Facebook and Google (not that I agree with that label but it's coming). Money managers are compelled to readjust accordingly; but they do have choices. Choices relate to preferences and proportionality.

This could get real interesting; since those two stocks will join a sector that is somewhat dominated by AT&T and Verizon presently. A common view (I disagree with somewhat incidentally) is that managers will offload the two latter for the new entrants. Really? How about the possibility that investors (managers) will increasingly focus on the funds where the action is. If that happens, money could exit the IT area somewhat (when Micron, Microsoft and Intel become dominant; although those particular issues might remain fairly stable), and increasingly focus on 'Communications' ETF's or similar, and thus enter what could be viewed as a bifurcated segment.  

Why bifurcated? Because Verizon and AT&T (for now) are low multiple as well as 'perceived' (until this week for the latter) conservative with dividend consistency as the focus; hence the pools in those funds aren't as large. I suspect that changes with Google and Facebook coming in. It might have a slightly bearish impact on price action for Google and Facebook (serious valuation issues already), while it might be uplifting for one former telecom more than the others (obviously AT&T and who knows what Verizon will do next; but they must do something more significant).  

At the moment, if you were a money manager and balancing required you to reallocate out at all (while I think most really would want 'in'), I suspect you'd hold Google over Facebook, but also retain AT&T over Verizon, because of everything we've pointed out all week. (It also means 'total return' of dividends and potential price appreciation being greater.)   

 The market is tenuously holding-on; much of the recovery (250 or so points snap-back by the Dow Industrial's on Friday) expiration-related. Risks persist, very much as we've outlined technically for several days as relates to stocks showing an 'inability' to surpass their own recent highs; a factor viewed we have viewed as more significant than temporarily holding short-term supports. Next week should see rebound tries however.  

With respect to AT&T, there was one factor that was very encouraging as to our new-found recent optimism (near the 31-32 area and sure would be even more so were it to go lower; although that's increasingly unlikely).  

That factor was Moody's, actually downgrading AT&T Debt to B+++ due to the Time Warner acquisition (newly renamed now as Warner Media; a wholly-owned subsidiary of AT&T; avoiding confusion with the older Time Warner Cable, which mostly became Brighthouse and Spectrum, but for which a spun-off portion still exists having nothing to do with this deal).  

My point: if AT&T can 'absorb' Moody's downgrade, on-top of others from both institutions and some publishers or pundits, then advance right away and hold it; well that's what it did and I view it as positive. It reinforces the suspicion that some of the negative press and downgrades merely opened a pathway for big institutions or funds to actually accumulate stock, which of course would be far tougher if the analysts were uniformly favorable. In fact a vocal cheerleader known for liking stocks 'after' they move up a lot, panned AT&T because he worries about the dividend. That's encouraging, as I'm sure he will love it at 40 or 50 and feign surprise it caught on with a slew of consumers across a broader spectrum of combined offerings.  

I don't mean to be cynical; I just know such a big stock takes time for any sizeable accumulation and you could just sense it for the last two days as buyers would just pullback briefly and see what selling drifted in; and push it up some more. I mentioned this often with smaller stocks like speculative LightPath I'm fond of (and incidentally suspect their colleague Luminar has a new deal with Volvo which will help LPTH if they're supplying sensor visible and infrared glass for the project; but only time will tell). When seen as a major stock like AT&T has to be accumulated carefully because it can spurt on any sizeable order it tells you they have to 'work' an accumulation order, as even such a high-volume stock has to be stair-stepped forward.  

Weekend (final) MarketCast

2 o'clock (intraday) MarketCast