The Dow staggered toward a disappointing session on Tuesday, as the stock market’s September recovery screeched to a halt just short of new all-time highs for Wall Street’s major indices.
Meanwhile, strategist David Roche warns that the stock market’s breathtaking 2019 recovery could be exposed as a house of cards.
Dow Heads Toward First Loss in 5 Sessions
The Dow Jones Industrial Average opened to moderate losses on Tuesday, pushing its four-day winning streak to the brink. As of 10:39 am ET, the Dow had lost 68.16 points or 0.25% to settle at 26,767.35.
The S&P 500 declined 16.63 points or 0.56%, forcing the large-cap index down to 2,961.84. The real estate sector led the retreat, dropping 1.86% as a group.
The Nasdaq suffered the most, dropping 51.10 points or 0.63% to 8,036.34.
David Roche: China Will Clobber US in Zero-Sum Trade War
September has historically been a dismal month for the Dow Jones Industrial Average. As CCN reported, it’s the only month that the DJIA has averaged declines for the last 20, 50, and 100 years. The index has recorded an average monthly decline of 1.08% since 1918.
Ugh, here comes Sept. From Bespoke: Over last 100 yrs, the Dow has averaged declines during one month: Sept, with 1.08% avg loss and with positive returns just 41% of the time.
Over last 50, 20 years, Sept positive 36%, 45% of the time w/ avg 0.92%, 1.18% declines, respectively pic.twitter.com/2Z19coWtiM
— Vito aka The Wall St Intelligencer (@WSintelligencer) August 30, 2019
The Dow has bucked that century-long trend thus far in 2019, rising around 400 points since the market closed on August 30. The DJIA now sits within striking distance of 27,398.68, the all-time high it set in July.
The stock market’s recent recovery has been tightly correlated with unfolding developments in the US-China trade war. Lately, the Dow and its peers have trended higher along with hopes that the two economic superpowers will achieve a “breakthrough” when they return to the negotiating table next month.
Unfortunately for equities bulls, strategist David Roche warns that these are false hopes and that investors should not delude themselves into pricing in a conclusion to the trade war that in any way favors the United States.
Speaking with CNBC, Roche – the president of Independent Strategy – explained that the trade war is about more than tariffs. This conflict is about the future of geopolitics, and it won’t be solved during President Trump’s first term in office – or his potential second one, for that matter.
“It is a conflict between a rising global power and a declining global power … It’s not just about trade. It’s about technology, it’s about the free flow of ideas, it is rapidly becoming about the free flow of individuals,” Roche told CNBC. “So it’s a really wide conflict, and it’s simply not gonna go away.”
Roche says that this conflict is a zero-sum game, and he fears that China will deal the US a crushing defeat. Arguing that Beijing “will never trust the United States again,” he predicts that China will continue to prioritize its domestic technology industry so that it won’t have to rely on American components or products.
He expects China to achieve full technological independence within seven years.
What Does Independent Strategy’s Bearish Forecast Mean for the Dow’s Near-Term Outlook?
However, even if Roche’s ominous forecast materializes, it’s not clear when this power shift will manifest in the stock market. Given that US tariffs have pinched the Chinese economy more than most analysts expected, it’s in Beijing’s interest to continue stringing Washington along with hopes of a trade deal.
That tactic won’t hoodwink the stock market forever, but trade war optimism has allowed the Dow to enjoy a buoyant run throughout 2019, despite the US and China achieving little tangible progress toward a trade agreement.
Click here for a live Dow Jones Industrial Average chart.