Stocks made new record highs once again on Friday. The recipe for success is a combination of:

• No flare ups on the China trade front.
• Earnings season better than the meager expectations.
• Economic data also better than low expectations.
• Fed rate cut on July 31^st a near certainty.

That last part has been foreshadowed for quite some time including many, many comments from Fed officials pointing in that direction. Yes, there is a modest risk that investors throw a tantrum if a rate cut is not on the docket this coming Wednesday. However, I suspect that would be short lived given that rates are already so low making stocks MUCH more attractive than bonds.

So our focus today is on the 2 items that are actually more important for the health of the bull market than the 7/31 Fed announcement.

US-China Trade

We have been blessed with virtually no news on this front for the past month. Now things are heating up a bit because the next concerted round of negotiations kick off next week.

Larry Kudlow was setting expectations on CNBC Friday by saying “DON’T expect a grand deal” coming together any time soon. That fits in with previous administration messaging that end of the year is a more realistic time frame.

This allows investors to be patient for now. However, it doesn’t prevent either side from going back to hard line negotiating tactics that would definitely rattle the market.

We don’t need a deal to make it to new record highs. So “no news indeed is good news” on this front. Unfortunately any renewing of the war of words between the parties will quickly lead to a market retreat.

Business Investment

Too many investors were focused on the headline version of Friday’s Q2 GDP report. Yes, the +2.1% showing was much better than the paltry expectations. And ample Government spending also added to the party. But hidden in the shadows was a really weak showing for business investment.

How bad was it?

The -5.5% decline was the worst since Q4 2015. And if you remember correctly the market had a near 20% correction shortly after that in early 2016.

We all know why it happened this time around. It’s because of the uncertainty over US-China trade leading to many corporations pressing pause on investment plans.

That’s fine for now because it is considered a temporary issue that will boomerang in the future propelling growth higher…but what if that doesn’t happen?

Meaning, businesses may continue to press pause on some investments because they are waiting for the trade issue to get ironed out. As we discussed in the previous section that is likely several months away. That could be more harmful to economic growth in Q3 and Q4 if the consumer and Government don’t come to the rescue again.

Long story short, we need to watch this element carefully because if it gets worse, then stocks are going to have a hard time climbing higher. Quite likely, GDP under 1% would result in the next pullback or correction as the risk of recession increases.

What to do Next?

Stay bullish for now because the trend is definitely our friend. We just need to be mindful of these 2 key elements that could send stocks on a southern detour.

I will continue to keep tabs on these issues in this commentary. Plus you should keep diving into the resources on StocksNews.com and ETFDailyNews.com to divine some of the best investment options.

You might also be interested in discovering the 10 stocks I have hand selected for the Reitmeister Total Return portfolio. Right now all of them are in the plus column blending attractive growth and value characteristics.

Learn more about Reitmeister Total Return portfolio

Wishing you a world of investment success!

Steve Reitmeister

…but my friends call me Reity (pronounced “Righty”)
CEO, Stock News Network

Editor, Reitmeister Total Return

SPY shares . Year-to-date, SPY has gained 21.97%, versus a 21.97% rise in the benchmark S&P 500 index during the same period.

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About the Author: Steve Reitmeister

Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks. More...

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