THE WEEK ON WALL STREET
Stocks fell sharply at the start of last week over trade tensions, then recovered with help from strong earnings and indications that U.S.-China trade talks would continue. Even so, the major indices had a down week. The S&P 500 lost 0.76%, while the Nasdaq Composite fell 1.27%, and the Dow Jones Industrial Average declined 0.69%. In contrast, the MSCI EAFE benchmark for international stocks rose 0.19%.
The markets did finally find some footing last week after a multi-week slide. The S&P 500 found a decent amount of support at the 2,800 level. There also appears to be a fair amount of resistance around 2,900. It doesn’t look like there’s a reason this market will break out of this range for the week. After bleeding off most of the year’s momentum in the past two weeks, we could be in for some sideways action while participants sort out the news. There seems to be little catalyst (short of a formally inked trade deal with China) to push the market through any of the upward resistance right now.
THE LATEST TRADE DEVELOPMENTS
A broad selloff occurred last Monday after China announced it would respond to increased U.S. tariffs by boosting its own import taxes on $60 billion of U.S. products. At midweek, Secretary of the Treasury Steven Mnuchin told reporters that he expected the U.S. to resume trade negotiations with China in “the near future.” Friday morning, the Street breathed a sigh of relief as the Trump administration decided to delay 25% tariffs planned for imported cars and car parts; they had been slated to take effect on May 18. Just hours later, President Trump announced an end to U.S. tariffs on metals coming from Canada and Mexico.
EARNINGS SEASON WINDS DOWN
The first-quarter earnings scorecard is nearly complete, as more than 90% of S&P 500 companies have reported actual Q1 results. Stock market analytics firm FactSet notes that 76% of these firms have beaten consensus earnings-per-share estimates. Overall earnings for S&P 500 components have surpassed expectations by 5.4%. Both of these percentages are above 5-year averages.
The market is quite sensitive to trade developments at the moment, and it is unclear whether this will be a short-term trend or a long-term influence on prices. While the U.S. prepares its next moves, China is also preparing its response to any new U.S. tariffs, which could include manipulating its currency.
Over the short-term, an actual "trade deal" may now be a stretch, but it would benefit all parties to continue to pursue a "trade balance agreement." Hopefully, the yin and yang can find a way to coexist before next month's G-20 meeting in Japan. President Trump and Xi need to connect their divergent philosophies of capitalism.
In the meantime, markets will remain beholden to volatility and uncertainty. Perhaps we'll see a pullback as a result of trade posturing. Of course, we will remain focused on fundamental data and the possibility that the Fed could come through with a rate cut this fall if they see any sign of an economic slowdown. My guess is that they will remain "patient" and data dependent.
It's a light economic calendar this week as we head into Memorial Day weekend. Mentioning Memorial Day, there won’t be a commentary on Monday next week as we will be closed. We’ll send an update out Tuesday unless something worth acknowledging pops up. Besides trade talk and retail earnings, the Street will be paying close attention to plethora of speeches from Federal Reserve officials. Durable goods and housing data will also be important reads.
Wall Street is fickle: what preoccupies it one day may be shrugged off the next. Short-term trends ultimately amount to background noise during the long-term pursuit of your financial goals. I just had a conversation with a client this morning where we discussed how many opinions the “so called” experts have and how most are the exact opposite of the prior “expert” on whatever show one may be watching. The best thing to do is to stay focused on the bigger picture and know that investing is a marathon and not a sprint.
These are the views of FMG Marketing Library, and not necessarily those of Nick Toadvine, or Calton Associates, Inc., and should not be construed as investment advice. Neither Nick Toadvine nor Calton & Associates, Inc. gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.