Tough week at the office as trade tensions continued to simmer, with a new front (re)opened Friday with threats against Mexico. With that the S&P 500 closed below the 200 day moving average at week’s end.
First, as to our friends in China:
Chinese state media reports underlined the country’s scope to use rare-earth minerals, used in the production of an array of devices such as mobile phones, computer memory chips and rechargeable batteries, as an economic weapon.
Second, over to Mexico:
Trump announced in a tweet that the U.S. would impose a 5% tariff on all goods from Mexico until that country stops the flow of illegal immigrants into the country. He said the tariffs will rise to 10% on July 1 if the crisis persists, and by another 5% for every successive month, up to 25% by Oct. 1.
“Tariffs will permanently remain at the 25% level unless and until Mexico substantially stops the illegal inflow of aliens coming through its territory,” Trump said.
That would be a disaster for the auto industry.
And then back to China Friday:
Stocks were also battered after a tweet from Hu Xijin, the widely followed editor of the Global Times, indicated that China will hit back hard at the U.S. “Based on what I know, China will take major retaliative measures against the U.S. placing Huawei and other Chinese companies on Entity List. This move indicates Beijing won’t wait passively and more countermeasures will follow,” the editor tweeted. Global Times is a Chinese state-owned tabloid that is watched for clues to government policy stances.
Not much to report on the economic front but April personal incomes rose 0.5%, while consumer spending rose 0.3%.
We highlighted both the 10 year bond AND oil in last week’s recap. Both had sharp drops this week yet again so worth showing them once more. That “inversion yield curve leading to recession” talk should continue to heat up.
This is a remarkable statistic:
Jonathan Golub, chief equity strategist at Credit Suisse, found that since Dec. 24, the S&P 500 had fallen a total of 7.7% when adding up its performance from the days in which the 10-year yield ended lower. On the flip side, the S&P rose a total of 30.3% when the 10-year yield finished higher.
And ….the hopes for the Federal Reserve to come to the rescue are now high…
The Fed fund futures market indicates a more than 82% expectation among traders for the central bank to cut interest rates by the Dec. 11 meeting.
For the week, the S&P 500 fell 2.6% and the NASDAQ 2.4%. This was the worst May for markets since 2010 but this is coming off a heck of a rally since Fed head Powell uttered the word “patience”.
Here is the 5 day weekly intraday chart of the S&P 500 … via Jill Mislinski.
And now Amazon is selling entire (tiny) homes online….
The week ahead…
First week of the month means heavy economic data inflow. ISM manufacturing Monday, ISM services Wednesday, and the monthly employment data Friday.
Short term: Both the S&P 500 and NASDAQ double tops sure look real right now. Both indexes broke their 200 day moving averages Friday.
The Russell 2000 broke out of a range it has been stuck in since February.
The NYSE McClellan Oscillator remains firmly in the red and is now oversold – usually we can get a quick bounce in this range in red on the charts but a couple times a year we can see a move to a level even lower. Whatever the case this indicator has urged caution for quite a while.
Long term: the S&P 500 cracked this long term support line – once that broke firmly in late 2018 we had a heck of a selloff.
Charts of interest / Big Movers:
Beyond Meat (BYND) continues this remarkable start of its public company life.
Tuesday, Capri Holdings (CPRI) sank 9.9% after the parent of Michael Kors and Versace said that fiscal fourth-quarter profits fell from the year ago period, while issuing downbeat guidance.
Abercrombie & Fitch (ANF) tumbled 27% after the apparel retailer reported same-store sales growth that missed expectations, while issuing weak guidance for the second quarter and full-year 2019.
Dollar General (DG) surged 7.2% Thursday after the discount retailer reported that first-quarter same-store sales grew by 3.8%, versus the 2.8% expected by analysts.
Friday, Red Robin Gourmet Burgers (RRGB) sank 17% after the restaurant chain posted weak quarterly results and a decline in comparable restaurant revenue.
Have a great week and we’ll see you back here Sunday!