SPX -- Update

If the trade spat with China deepens, market players may want to re-assess their expectations for
the SPX. Additional punitive actions by both countries will nick earnings estimates for the
market, and likely higher inflation may cause investors to trim the SPX p/e ratio. China has
been running an elaborate stall on meeting the substantial reforms to Its economic policies and
practices demanded by team Trump. The week ended with anger expressed by both sides. Trump
promises deeper tariffs, but it might be more prudent for both sides to let the situation cool off
for a while so that tempers can be brought into check.

The SPX was overbought on a short term basis as we entered last week, so the escalation of
trade tensions provided a convenient excuse for traders to take some profits in the wake of the
furious run up in the market since late 2018.

My primary monetary liquidity measures suggest caution on economic and profits growth
estimates through 2020, and my weekly cyclical fundamental indicators remain on the flat side
dating back to early 2018. Fundamental support to raise short term interest rates further has
waned some because capacity utilization measures have eased and because my short term credit
supply / demand ratio is below levels that signal demand overheat. For now, I am keeping my
fair value estimate for the SPX at 2650.

To win re-election, Trump needs to press the Fed to keep short rates low and to be careful with
the continued application of tariffs on China. The Street is counting on him to do this. The
guys want to keep the market on the rise and also worry about what the Democrats might do
with tax rates on the wealthy and on business if they win big next year.

SPX Weekly