After The Close - The market opened the day lower, mainly in response to President Trump statement yesterday that “China broke the trade deal”. This hurt sentiment, as fears increased that a trade deal would not get done. It also caused the Dow Jones Industrial Average to fall by as many as 450 points in early trading, while the S&P 500 was down 43 points. After the initial fall, the markets traded choppily in a sideways direction for a spell. Sentiment then started to improve when President Trump stated that a deal was still possible, but tariffs were an “excellent” alternative. Investors took this to mean that a deal could still be achieved before tariffs are enacted tomorrow. This cut the deficits, nearly erasing all of the day’s losses. Still, the markets finished the day in the red, with the Dow closing lower by 139 points, the S&P 500 slipped nine points, and the NASDAQ fell 33 points.
Additionally, market breadth was rather negative, as decliners outpaced advancers by a 1.5-to-1.0 ration Interest-rate sensitive REITs and utilities stocks were among the best performers on the day, while technology equities were among the weakest.
In commodity news, oil prices were lower today, as increased fears of a trade war dragged down energy costs. This was caused by lower projected demand.
Meantime, U.S. Treasury bond yields were lower across the board, as a flight to the safe-haven asset occurred. Surprisingly, the VIX Volatility Index was just south of breakeven, as demand for options protection fell. This was unusual given the negative stock sentiment throughout much of the day.
Looking ahead, a few key economic indicators are slated for release tomorrow. These include the Consumer-Price Index for April along with the U.S. Treasury budget. Additionally, a few larger companies are slated to record quarterly results. Still, we think all eyes will be looking towards a trade outcome, and to see if increased tariffs come to pass. - John E. Seibert III
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell - The stock market sought to come back yesterday, just one day after ill-trade winds coming out of China had sent the bulls running for cover. On point, following Tuesday's 471-point rout of the Dow Jones Industrial Average--that composite had been off 650 points earlier in the afternoon--stocks started the latest session off with just minor losses. However, soon enough, the bulls were back at it again, and the Dow was soon up by more than 100 points. That formidable, albeit partial, recovery evolved after the President noted that he sensed China still wanted to make a trade deal and do so quickly.
It should be noted that it was our threat of increased tariffs on a wide range of goods made in China that had pummeled stocks on Monday morning (before a late recovery set in) and then all day on Tuesday. Now, stocks were attempting a revival. However, as the morning concluded, the earlier buying burst had dissipated and the market was mixed, entering the afternoon portion of the trading day with the Dow flat and the S&P 500 and the NASDAQ slightly in the red. The President's suggestion that he was happy with the current tariffs tempered some of the early session optimism.
However, on second thought, there seemed to be some sense, as there had been on Monday when the tide turned in favor of the bulls, that all of this would work out in the long run, and that calmer heads would prevail. As such, the reasoning went that the Street's worst fears about trade would not be realized. So, stocks moved forward in rather bullish fashion as the afternoon moved along. In all, as we neared the final hour of trading, the Dow was back up by just over 100 points, while somewhat modest gains were being realized by the S&P 500 and the NASDAQ.
All of this, of course, was predicated on the hopes that a viable trade deal can be salvaged before the higher tariffs are scheduled to kick in tomorrow. Meanwhile, there seems to be a split on Wall Street as to how much damage the higher levies would impose, with some conjecturing that even should the increase in tariffs take hold, a trade deal might still get effected this spring. Moreover, data released yesterday by China affirmed that its trade surplus in April was nearly $14 billion; that was well below expectations. But its trade surplus with the United States increased last month, and that is spurring the tariffs threats, we think.
The Dow's advance would then move past 150 points as we entered the final stretch of trading. But that partial recovery would be the session's high-water mark, and stocks would then proceed to give up their gains into the close, as worries about trade, the big issue now that faces Wall Street, would continue to rattle investors. Meanwhile, economic news was scarce yesterday, while profit reports were largely in for the latest quarter. All told, the day showed the Dow essentially turning in a breakeven performance, while modest losses were suffered by the other core indexes.
Now, a new day dawns and the bulls will once more attempt to right the ship as fierce trade winds continue to blow things around. As for the markets to so far, stocks in Asia were lower in overnight trading, on China trade fears, while in Europe, the key bourses are moving downward, as well, at this hour. Also, oil prices are easing and yields on the 10-year Treasury note, which closed yesterday at 2.48%, are now passing hands at 2.45%. Finally, U.S. equity futures are suggesting that stocks will start the new day to the downside. But as has been the case this week, volatility will likely be high. – Harvey S. Katz, CFA