More China Stimulus And A Looming Port Strike

Key Takeaways

• Chinese Stocks Rally 8% Amid Massive Stimulus From The PBOC
• U.S. Chipmakers Fall On China’s Potential Chip Sector Investments
• East Coast Port Strike Could Cost The Economy $4 Billion Daily

As we head into the final day of both the month and quarter, stock index futures are trading down slightly in premarket. On Friday, both the S&P 500 and Nasdaq Composite fell 0.3% and 0.4%, respectively. However, the Russell 2000 gained 0.7% while the Dow Jones Industrial Average moved higher by 0.5%. For the quarter, the S&P is up over 5% through Friday and over 1.5% for the month. The Nasdaq Composite is up over 2% for the quarter and 2.2% for the month.

One of the more interesting stories that I'm watching is what is taking place in China. With the Chinese economy struggling, the People's Bank of China (PBOC) has unleashed a plethora of tools aimed at stimulating the economy. Some of these I've already discussed, but they include a lowering of mortgage rates, funding for buying stocks by institutions and also assisting with share buyback programs. As a result, Chinese stocks have rallied sharply and are up another 8% Monday. It's the best performing day for China's market since 2008. While the stimulus measures are showing initial strength, as I mentioned on Friday, this is a major attempt at boosting markets and should it fail, I'm not sure what more China has to offer in terms of stimulus tools. Therefore, I'm very focused on whether or not stocks can hold their gains or if this is simply a short-term rally in a bear market.

On a side note, U.S. chipmakers are indicated lower in premarket trading. One of the potential concerns with respect to China's stimulus efforts is they may choose to begin heavily investing in their own chip sector. That could in turn lead to greater competition and cheaper alternatives as companies forge ahead with Artificial Intelligence (AI) related investments.

Back here at home, there are a number of significant newsworthy items. I'll start with the looming strike on the East Coast. The International Longshoremen's Association is set to go on strike tonight at midnight if a new contract isn't accepted. There are some 45,000 workers who could potentially strike, shutting down ports from Maine to Texas. According to The Wall Street Journal, the strike would impact imports of food, vehicles, heavy machinery, construction materials, chemicals, furniture, clothes and toys. The economic impact could cost the U.S. economy an estimated $3.8 - $4.5 billion per day. Companies that could be impacted by a strike include Walmart, Caterpillar, General Motors and others. This is definitely a situation worth monitoring, especially as we head into the holiday shopping season. Also, should the strike go on for an extended period of time, it could reintroduce inflationary pressures.

There are a couple of companies in the news this morning, starting with Stellantis. The automaker is warning on their forecast for gross profit margins. As a result, that stock is down 13% in premarket. I'll be curious how other automakers react to the Stellantis news, as well as the looming ports strike. AT&T is selling their 70% stake in DirectTV business to private equity firm TPG for $7.6 billion. At the same time, DirectTV announced this morning that they reached an agreement to purchase Dish, which is owned by EchoStar. The details are a bit complicated, but essentially result in DirectTV assuming $9.75 billion of Dish's debt. And lastly, shares of CVS are higher in premarket trading by 3%. The company is being pressured by activist shareholder Glenview Capital to make changes aimed at creating greater value.

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In the broader economy, we are heading into what could be an interesting period. This is a heavy week for economic data with the theme being jobs. Tomorrow, we'll get the latest report on job openings and then Wednesday, a look at private, non-farm payroll hires. However, Friday will be the big day with the latest unemployment figures scheduled for release. I'll have more on that in my Wednesday piece.

For today, I'm watching the VIX which had a late day run on Friday. The VIX is up 2% in premarket and given the geopolitical issues as well as economic news coming, I can't say I'm too surprised. In addition, we're just under two weeks away from the beginning of earnings season and a month away from the election. Not to mention, October markets have a history of throwing child-like temper tantrums. Therefore, there are a lot of potential catalysts floating around and I think it's fair to suggest we could be in for some choppy trading. Like I suggested last Friday, it may be a good time to review your holdings and how your portfolio is positioned as we head into the final quarter for the year. As always, I would stick with your investing plans and long-term objectives.

tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.