War of Words

War of words.  Stocks rallied for a third day in a row as hope for a trade deal and a Fed rate cut dominated the session.  Despite the executive order banning US companies from dealing with Chinese equipment makers, traders remained optimistic that a trade deal could get done thanks, in part, to comments made by Steven Mnuchin.

WHAT YOU NEED TO KNOW:

1)  The trade saga enters a new stage.  Yesterday’s news of Trump’s banning Chinese wireless equipment manufacturers drew sharp verbal criticism from President Xi.  The rhetoric did not end there. WHILE YOU SLEPT, Chinese state media reported that China is not interested in continuing negotiations if there is no evidence that the US is sincere.  Further it was reported that China would add further stimulus to counter the effects of recent and proposed tariff hikes.  The crux of the message is that China is digging its heels in.  How does the market view all of this?  Chip makers fell yesterday on the news of the executive order as many of them sell products to Chinese telecom equipment manufacturers.  Traders who are hoping and betting on a Fed rate cut welcomed the news as the turmoil to the global economy would give the Fed more of a reason to add stimulus.  Stephen Mnuchin, a member of the plunge protection team, was quick to come out yesterday and announce that negotiators may meet in Beijing next week to restart talks after last week’s stall.  His comments sparked yesterday’s rally in stocks.

2)  Um, earnings still matter.  In the shadow of all of the escalating geopolitical risk, earnings season still marches forward, and the smart money is paying attention.  Cisco announced an earnings beat after the close on Wednesday and provided positive guidance causing shares of the equipment maker to rally by +6.7% in yesterday’s session.  Walmart announced an earnings beat before yesterday’s bell causing its shares to rally in yesterday’s session.  After yesterday’s closing bell chip manufacturers Applied Materials and Nvidia announced earnings beats causing shares to rise in pre-market trade.  Pinterest is a different story altogether.  One of the first of the unicorns to take the stage in an IPO this year announced that it lost more than Wall Street estimates… by -220%. Pinterest is down by -15% in pre-market trade.

THE MARKETS:

The stock market continues to run on optimism that a trade deal may actually happen.  If a deal doesn’t happen, many expect the Federal Reserve to step in and stimulate growth.  However behind the headlines and mounting geopolitical risks, earnings season turned out better than expected and economic numbers still indicate a healthy economy.  Stocks closed in the green yesterday and the S&P500 traded up by +0.89%, the Dow Jones Industrial Average climbed by +0.84%, the Russell 2000 ascended by +0.58%, and the NASDAQ 100 jumped by +1.02%.  Bonds pulled back slightly with the 10-year treasury yield climbing by +2 basis points to 2.39% and the 3-month / 10-year yield curve popped back into positive territory by a hair.  Bitcoin pulled back by -6.05% and Gold fell by -0.75 as the dollar rallied on positive trade vibes.

WHAT TO LOOK FOR TODAY:

This morning we will get the Conference Board's Leading Index which is expected to have grown by +0.2% compared to last month's +0.4% growth.  The Leading Index is a good early indicator of future economic activity.  The University of Michigan will release its preliminary Sentiment number for May and it is expected to come in at 97.2 flat from last month’s read.  New York Fed President John Williams and Fed Vice Chair Richard Clarida will be speaking today.  Deer & Co. announced earnings early this morning and missed by -2.07%.  Its shares are down by -3.7% in the pre-market.  Next week we will get some more housing data, durable goods orders, manufacturing PMI, and FOMC minutes which will be at the top of many traders’ reading lists.

daily chartbook 2019-05-17