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Tensions between the United States and China have risen in recent weeks after U.S. President Donald Trump criticized the Chinese government's response to the coronavirus outbreak.
Investors were worried that Trump may pull out of the phase one trade agreement with China reached earlier this year.
That's why they sold off stocks into the close yesterday and throughout most of the day today.
But fortunately, the president didn't even bring up the trade agreement during his press conference today.
Instead, Trump announced he would take action to eliminate special treatment toward Hong Kong.
Money Morning's Chief Investment Strategist, Shah Gilani, was watching this press conference closely and dissecting all the news that came to light today.
Here's how he thinks investors should be positioning themselves heading into the weekend…
Shah thinks this rally is driven by retail investors, which is a rare and reason for caution. You see, retail investors aren't as sophisticated as the "smart money" hedge fund managers on Wall Street.
Retail investors could be fearing missing out on the rally, so they're piling back into stocks now.
And once that buying dries up, that could be a sign that a new top is forming…
Shah thinks investors would be wise holding on to the ProShares Short S&P 500 ETF (NYSEARCA: SH) as a hedge.
Finally, Shah is closely watching the corporate bond market.
He noted that government is already slowing its purchases of corporate debt, which is a worrying sign.
That's because the open market is unlikely to buy the same junk debt because it knows the ability for companies to pay back these high interest loans is low.
So, once Wall Street and the broader stock market catches on and sees the inherent problems in the bond market, that will increase the probability stocks sell off.
The worst could still be ahead of us, and Shah thinks investors should continue holding cash, gold, and hedge positions on their stock portfolios.
Catch us Monday – starting LIVE again at 8:45 a.m. EDT with Chris Johnson, right here.
If you missed our live streams today, you can now replay them on our YouTube channel, here.
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