Which Way is Up?

Which way is up?  Stocks traded up on Friday as traders scraped up bits of hope that a speedy deal will be reached with China.   Stocks gave up early gains on a positive Trump comment but still managed to close in the black on the lowest volume day of the year.

MY TWO CENTS:

1.  The trade dispute will probably not end soon.  Despite positive comments designed to keep the bulls happy, tensions are mounting.  WHILE YOU GRILLED, President Trump laid out some fairly negative talk in Japan about trade discussions with China saying that “… we’re not ready to make a deal” and that tariffs could increase “very, very substantially”.  The statements seemed at odds with the President’s positive comments on Thursday night which helped to prop up markets on Friday.  Investors appear to have largely been writing off bad comments and hanging onto the good.  Though stocks are down since tensions escalated, the -4% drop that has ensued since stocks hit new all time highs on April 30 does not reflect the true damage that can be caused by a prolonged trade dispute.

2.  Lest we forget, trade disputes are not only with China. While the dispute with China is taking center stage, there are also ongoing battles being waged against Japan and the European Union.  Though all appeared well on the surface between Trump and Japan’s Abe, the two are far away from any agreement.  Just last week, Toyota expressed their frustration with the Administration in public comments.   Meanwhile the EU is preparing for a battle if Trump follows through on taxing European auto imports, though the administration recently put a 90 day moratorium on the hikes.

THE MARKETS:

On Friday, stocks had their lowest volume day in 2019 as traders responded to positive comments made by the President the night before.  A slightly weaker than expected Durable Goods Orders number put a damper on the buying, but stocks still managed to close in the positive.  The Dow Jones Industrial Average closed up by +0.37% on Friday but it was down by -0.69% for the week, making it down five straight weeks in a row.  The S&P500 rose by +0.14%, the Russell 2000 climbed by +0.85%, and the NASDAQ 100 slipped by -0.10%.  Bonds pulled back slightly and the 10-year treasury yield inched up by +1 basis point to 2.32%.  Also in the bond world, yield spreads of lower-grade corporate bonds have widened a bit.  That means that lower quality bonds are slightly cheaper relative to less risky treasuries.    Widening spreads usually indicate weakness in the market as traders seek more yield to compensate for risks.

WHAT’S NXT?:

-  The Conference Board's Consumer Confidence indicator is due this morning and is expected to have climbed slightly to 130.0 from last month’s 129.2.  Watch this one carefully as a similar number showed an unexpectedly large increase two weeks ago.

-  The FHFS Housing Price Index is expected to show a month over month gain of +0.2% compared to last month’s +0.3% gain.

-  The week ahead will include GDP on Thursday, Personal Consumption Expenditure (PCE) Deflator and University of Michigan Sentiment on Friday.  We will also get some more retail earnings this week starting with Dick’s Sporting Goods and Abercrombie & Fitch tomorrow morning.  Please refer to the attached economic and earnings calendars for details.

daily chartbook 2019-05-28

earnings releases 5_28

econ numbers 5_28