Why the Market Keeps Rising Despite Terrible Economic Data

In case you were hoping 2020 was done with the bad news, these past few days were sure to disappoint.

On top of a now six-month long global pandemic and the resulting economic downturn, we’ve had a public display of horrendous police brutality.

And following that, we’ve seen the worst civil unrest in five decades, with protests, demonstrations, and unfortunately, violence and looting in many cities across the country.

Add to that reports that China is cancelling its commitments under January’s Phase One trade deal (along with the rest of the troubling tensions with China), and surely the markets should be down.

After all, how bad do things have to get to drive the S&P 500 down a few points?

Instead, markets opened flat this morning. And then the major U.S. indexes marched dutifully upward into midday.

In other words, the markets reacted with a shrug.

The Hong Kong Takeover and What It Means for Your Portfolio

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