3 Problem Areas for Market in Fourth Quarter

 | Sep 22, 2017 | 1:00 PM EDT
  • Comment
  • Print Print
  • Print
Stock quotes in this article:




In yesterday's column, I wrote of the uncertainty facing the market as the QE era begins to wind down after nearly nine years. "What's next?" is not always a lucrative question for stock market longs, and here are three situations that could impact the market negatively as we move into the fourth quarter of 2017. 

North Korea 

It's very difficult to invest on geopolitics when the potential problems are coming from a state with virtually zero relations with the West. I could handicap Brexit before the referendum because I lived in the U.K. for five years, but the number of analysts and diplomats who have a true understanding of Kim Jong Un and his motivations would seem to be near zero. As long as he's in power, "Noko" will remain a wild card for the markets. 

Graham-Cassidy-Heller-Johnson (GCHJ) 

The markets' focus on Washington throughout 2017 has been on the Republicans' chances of tax reform, and specifically lowering corporate tax rates. While pundits -- and seemingly many Democrats -- were focused on taxes, though, the Senate Republicans quietly have cobbled together a viable replacement to the Affordable Care Act. Republican Senate leaders are putting a full-court press on Alaska's Lisa Murkowski, and if she votes yes on GCHJ, Obamacare as we know it will cease to exist by the end of next week. 

I have spent much time this week analyzing GCHJ, and while some of the analyses and conclusions drawn by noted healthcare experts such as Jimmy Kimmel are laughably off-base and incredibly misleading, it is clear that GCHJ represents smaller government, not bigger. 

It's true that if GCHJ passes next week it is more likely that tax reform would get done in 2017. That would be the first major reform of the tax code in this country since 1986, but I believe investors are missing the point. The fiscal conservatism of the Reagan/Volcker/Stockman era was a very different beast than the borderline-Keynesian policies of the Bush/Bernanke/Frist Republicans. The fiscal hawks in the House really believe in lower federal spending and smaller government, as opposed to those senators who just vote for it when it is politically expedient. 

In a market that has been addled by a constant drip of both fiscal and monetary conservatism from D.C., a rebirth of true, Reagan-era fiscal conservatism could chill hopes of expansionist policies. 


Apple (AAPL) is a handset company in the meaty part of an upgrade cycle. But therein lies the problem for the stock. As I have mentioned many times, stocks are forward-looking, discounting mechanisms, and as the iPhone8/X populates sales channels, the relevant question for the longs becomes what's next; i.e., what are we waiting for? 

With no new product launch on the horizon, and with the iPhone 8/X receiving mixed reviews -- and the Apple Watch 3 receiving widespread criticism for connection issues -- Apple isn't a product story now. 

The focus will shift to Apple's real weakness, which is an under-representation in emerging markets, specifically China. The most recent figures I have seen show Apple in fifth place in China after Huawei, Oppo, Vivo and Xiaomi. It is difficult for analysts to precisely pin down market share in the Chinese smartphone market, but directionally one can see that Apple is a second-tier player there. 

This means that the "ecosystem play" is not as strong for Apple in China as it is in Western markets. Also, if there is such a play it would be benefiting Alphabet (GOOGL) instead, as other major Chinese smartphone makers use the Android operating system. (Apple and Alphabet are part of TheStreet's Action Alerts PLUS portfolio.) 

Really, though, the Chinese smartphone market is being driven by over-the-top communications apps such as the incredibly popular WeChat. Those apps don't require the massive computing power and terrific screen resolution of the iPhone 8 to operate. 

So I believe it is impossible to sell a phone that is advanced enough to capture market share in the West yet carries components inexpensive enough to compete on a price basis in the East. Yet Apple is selling essentially the same iPhone everywhere, as the "c"-branded, lower-priced versions of the iPhone haven't created market-share gains for Apple in China. 

That conundrum is going to hit Apple shares going forward, and could continue to pressure the market overall.

Columnist Conversations

Most investors have given up on Vera Bradley (VRA) , but the punishment may not fit the crime, and the company...
When the whole world sells off everybody wants to assign a reason for the action. Today's suggestions: 1...
For the first time since early February the down volume as a percentage of total volume on the NYSE is over 90...



News Breaks

Powered by
Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.