In last week’s recap we noted the NYSE McClellan Oscillator has been negative all that week, which was a caution flag for short term traders. Higher volatility and a downward skew did indeed follow. Monday and Wednesday were big down days, offset a bit by a moderate rally Thursday. Monday’s weakness was mostly triggered by TRADE WARS!!(tm):
In a Twitter post Sunday, Trump called on trading partners to remove their “trade barriers and tariffs or be met with more reciprocity by the U.S.”
On Friday, Trump’s threatened to impose 20% tariffs on European cars in response to the EU’s decision to impose 25% tariffs on more than $3 billion worth of U.S. goods as retaliation for U.S. tariffs on steel and aluminum that the Trump administration put into effect on June 1. On Saturday, EU Commission Vice President Jyrki Katainen told the French newspaper Le Monde that “If they decide to raise their import tariffs, we’ll have no choice, again, but to react,” according to Reuters. “We don’t want to fight (over trade) in public via Twitter. We should end the escalation.”
For the week the S&P 500 closed down 1.3% while the NASDAQ retreated 2.4%. Keep in mind the NASDAQ was well ahead of the S&P 500 the past few weeks so some “reversion to mean”. For the quarter the S&P 500 gained 2.9% and is up 1.7% year to date. Meanwhile the NASDAQ was up 6.3% for the quarter while it is up 8.8% year to date.
Most economic data was not market moving but it is worth noting orders for durable goods fell 0.6% in May following a revised 1% decline in April, driven by a drop in new orders for trucks and cars. Stripping out planes and cars, orders fell 0.3%. Transportation often exaggerates the ups and downs in orders because of lumpy demand from one month to the next.
GDP in Q1 was revised down to 2% from 2.2%.
We mentioned the divergence between small caps in the Russell 2000 and the multi national giants in the Dow Jones Industrial Average in last week’s recap. It is worth noting again that chart for the DJIA as it’s the weakest of the bunch (by good margin) and actually fell below it’s 200 day moving average this past week.
Oil was VERY strong all week as the U.S. threatened to sanction countries who do not cut their imports of Iranian oil to “zero”. Prices are at levels last seen in 2014!
A “total stop [of Iranian exports] is unlikely to happen but the more aggressive tone [from the U.S.] suggests there may be a much bigger reduction in Iranian flows than the market has so far priced in,” analysts at consultancy JBC Energy wrote in a note Wednesday. Iran currently exports around 2.4 million barrels a day of crude. Analysts had estimated that anywhere between 400,000 to a 1 million barrels could be at risk once sanctions are fully reinstated in six months.
About that Bitcoin…. ouch.
Here is the 5 day weekly “intraday” chart of the S&P 500 …via Jill Mislinski.
Another great infographic from the Visual Capitalist on the world’s largest exporters. I bet many people would have some difficulty guessing who is #3 after China and the U.S. and almost no one would guess #5!
The week ahead…
Economic data comes back to light with ISM Manufactuirng Monday, and non manufacturing Thursday. June employment data hits Friday with expectations of 195K jobs created and 3.8% as the unemployment rate. Let’s see if TRADE WARS!!! ™ continues to weigh.
Short term: We mentioned last week to “watch 2740” on the S&P 500 which was the breakout level to hold; that failed immediately Monday which would be another sign to be near term cautious. The NASDAQ had sprinted ahead of the S&P 500 but was not immune last week and indeed fell to its own 50 day moving average Thursday before bouncing a bit.
The Russell 2000 remains impressive.
Still significantly in the red on the NYSE McClellan Oscillator so another week of remaining cautious (having more cash than normal) if your timeframe is shorter term.
Long term: Still very positive for the “buy and never sell” crowd.
Charts of interest / Big Movers:
Trump spent much of the week belittling Harley Davidson (HOG) which announced that EU tariffs on the company’s motorcycles increased to 31% from 6%, and will raise the cost of the average motorcycle shipped to the EU from the U.S. by about $2,200.
Tuesday, General Electric (GE) rose 7.8%; it’s biggest one day pop since April 2015. The gain came after the industrial conglomerate said it plans to spin off its health-care business and unload its ownership in oil-services company Baker Hughes. Been a rough year for this stock as it’s fallen off about 50% in the past 12 months!
This week in the biotech lottery, Aquinox Pharma (AQXP) Wednesday fell a cool 85% after the company’s cystitis drug trial failed to meet its main goal.
Another lottery loser – Arsansis (ASNS) plummeted 78% Thursday after it said it was discontinuing a Phase 2 trial of a treatment for pneumonia in high-risk, mechanically ventilated patients after determining that it was unlikely to meet its main goals.
What’s old is new again? BJ’s Wholesale Club (BJ) surged 29% in it’s trading debut Thursday. The operator of 215 warehouse clubs in 16 states, largely along the eastern seaboard, is returning to the public markets after a seven-year spell as a private company.
Friday, Nike (NKE) soared 11% to a record high, after the athletic apparel company reported upbeat results and announced a $15 billion share buyback plan.
Not big movers but note the charts holding up in volatility – they usually rally the best once market conditions return to positive.
Have a great week and we’ll see you back here Sunday!