The market held its breath on Friday in anticipation of President Trump’s press conference on the subject of China, as the tone of his statements could have huge ramifications for the markets.
I had to film this week’s market update video before the press conference in order to get it to you today, so you’ll know the results of the press conference by the time you see this. So, to cover my bases, I’ll go over what I see as the three potential outcomes of the Trump’s address, and what effect each will have on the market.
We’ll also take a look at a new Reality Gap concerning the big swings we’ve seen lately in sector rotation. As money flows out of the tech sector, it’s being funneled into some unexpected sectors.
Last week, I mentioned that a return of last year’s clash with China was a wildcard that could upset the markets.
Well, China has gone ahead and put my words to the test.
On May 21, China announced that it would impose a draconian new security law over Hong Kong, the largely democratic and self-governed Chinese city.
You might remember that when Hong Kong’s pro-Chinese government tried to do something similar last year, the demonstrations there brought the city to a standstill. Because Hong Kong has long been a center of Asian trade and finance, the costs to China were huge, both in terms of lost money and loss of face.
From March through the end of the year, the people of Hong Kong made it clear they would not accept a takeover by China’s ruling Communist Party. The Hong Kong government retreated, and the matter disappeared as the COVID-19 pandemic started spreading.
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Well, now China is trying it again. This time, they’re not even pretending that Hong Kong’s local government is in charge.
On Tuesday of this week, the market didn’t show much reaction. The Reality Gap between the mild market reaction and the potential ramifications from an escalation in confrontation over Hong Kong has started to come into full view. The White House’s announcement about a news conference on China sent the markets down 350 Dow points yesterday afternoon. And trading is muted Friday morning as traders are showing concern over how aggressive China is getting and what U.S. foreign policy and trade reactions could be. Hong Kong is just the tip of the iceberg.
And it’s not about to stop. The effects on Chinese stocks could be huge…