After The Close - Equities opened sharply lower this morning, recovered some ground in the early afternoon, but weakened again in the final hours of the day. Once again, traders worried about deteriorating trade relations between the United States and China. More recently, the U.S. government ordered a ban on technology sales to Huawei, a leading corporation based in China. The move did not sit well with Wall Street, and likely ignited fears of a larger global slowdown. At the close of trading, the Dow Jones Industrial Average was down about 84 points; the broader S&P 500 Index was off 19 points; and the NASDAQ was lower by 114 points.
Market breadth showed a negative bias to the session, as decliners outnumbered advancers by a wide margin on the NYSE. The technology stocks weighed on the market today, as many of these companies have considerable ties to China. Meanwhile, the defensive high-yielding utility issues managed to display some relative strength, as traders looked for safe havens. The financial names also held up reasonably well.
There were no major economic reports released this morning. The lack of information probably did not help matters, leaving traders free to concentrate on developments taking place overseas. Tomorrow, we will get a look at existing home sales for the month of April, with the monthly new home sales figures coming in later in the week. Of note, the U.S. housing market has been strong, and traders will likely be looking for signs that this key segment of the economy is still in good shape.
Finally, in the corporate arena, the first-quarter earnings season has largely concluded. However, some companies are still reporting numbers. In fact, Home Depot (HD – Free Home Depot Stock Report) is slated to weigh in with its report tomorrow. In M&A news, shares of Sprint (S) traded dramatically higher on hopes that the proposed merger with T-Mobile (TMUS) may be closer to being approved.
Technically, the stock market pulled back in early May, and has been looking for some support. Clearly, traders would like to see relations between the U.S. and China improve. However, it seems that could take time. - Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell - The most recent five-day stretch of trading on Wall Street was another volatile one for those long equities. Indeed, investors were taken on a rollercoaster ride. The week started with the major selling from the previous week continuing, as investors were rattled by the worsening trade relationship between the United States and China, with many pundits thinking a continuation of the bickering may eventually lead to a global recession. But, then the major indexes steadied, and rallied for three consecutive sessions, helped by some trade commentary, good earnings reports from two Dow-30 components, including mass merchandiser Walmart (WMT – Free Walmart Stock Report), and some solid data from the business beat, before the sellers reemerged on Friday to end the week on a down note.
For the week ended May 17th, the Dow Jones Industrial Average, the NASDAQ, and the S&P 500 Index were down another 0.7%, 1.3%, and 0.8%, respectively. As noted, worries about global trade tensions continue to take measure of equities. The recent theme on Wall Street has been the flight from riskier holdings into safer selections. The biggest selloff has been seen in the technology sector, with investors thinking the increased trade tariffs with China will hurt technology demand from one of the sector’s fastest-growing regions. Apple (AAPL – Free Apple Stock Report) has been the poster child for those worried about the fallout from less demand from the world’s second-largest economy, with investors punishing the technology stock. Likewise, industrial stocks, including those of the multinational companies, like Caterpillar (CAT – Free Caterpillar Stock Report), are feeling the wrath of a nervous Wall Street. The selling in those areas has been meet with increased demand for defensive-oriented issues and fixed-income securities. In fact the yield on the 10-year Treasury note, which moves inversely to the price, continues to fall sharply.
With the first-quarter earnings season now almost in the record books, investors have focused much of their recent attention on global trade—and the narrative has not helped equities. The newest round of tariffs by the United States against China-made goods and the retaliatory measures coming on June 1st from the Asian nation have investors quite worried that the bickering will push the global economy into a recession. GDP estimates for many Asian and European nations have come down in recent weeks. This, along with growing geopolitical strains (including increased tensions between the U.S. and Iran recently), is not a good backdrop for equities and hence the selloff over the last three weeks. On the positive side, the United States, Canada, and Mexico, are moving even closer to a new trade agreement, so much so that the United States removed tariffs on many imports from Canada on Friday.
Looking ahead to the new trading week, the reports from the business beat will be housing dominated. On Friday, we received encouraging data on housing starts, with the recent notable pullback in mortgage rates helping fuel demand for homes. This week will get the latest monthly reports on existing and new home sales. We will also get the minutes from the latest FOMC meeting on Wednesday afternoon at 2:00 P.M. (EDT). The Federal Reserve’s decisions and commentary of late have been rather dovish and we don’t expect the latest minutes to show any deviation from that stance. This has helped provide some support for equities at a time when trade disputes have unnerved traders both here and abroad.
With less than an hour to go before the new trading week stateside, the equity futures are indicating a lower opening for the U.S. equity market. Trade fears are continuing to weigh on issues. On point, the European bourses are trading lower, as concerns mount about the escalating trade fallout from the United States’ treatment of China’s Huawei Technologies. The China-based technology giant was added to the Trump Administration’s trade blacklist last week, making it difficult for the company to do business with U.S. entities. Investors around the globe see this as a sign that the trade dispute between the United States and China is not close to being resolved. Germany’s DAX and France’s CAC 40 are down more than 1%, as trading moves into the second half of the session on the Continent. Those ill tidings are likely to spillover to our shores when trading kicks off. Stay tuned. – William G. Ferguson