Investment Commentary – May 7, 2019

Year to Date Market Indices as of Market Close May 7, 2019
Dow 25,965 (11.31%)
S&P 2,933 (15.05%)
NASDAQ 8,120 (20.02%)
Gold $1,285 (-0.92%)
OIL $61.24 (29.25%)
Barclay Bond Aggregate (3.06%)
All World Market Index (14.42%)

Dow falls 500 points as stocks retreat for second day on U.S.-China tariff worries

U.S. stocks accelerated losses Tuesday afternoon and remained near session lows, building on the previous day’s decline after U.S. officials confirmed that tariffs on imported goods from China could be raised by the end of the week.

How are benchmark indexes faring?

The Dow Jones Industrial Average DJIA, -1.79% fell 542 points, or 2.1%, to 25,897, while the S&P 500 index SPX, -1.65% dropped 58 points, or 2%, to 2,884. The Nasdaq Composite Index COMP, -1.96% fell 188 points, or 2.3%, to 7,935.

What’s driving markets?

U.S. stocks continued to retreat following on losses Monday, as investors grew concerned that the U.S.-China trade dispute would escalate by week’s end, after months in which market participants had predicted that both sides would soon come to an agreement to lower tariffs and create more certainty over U.S.-China trade rules.

U.S. Trade Representative Robert Lighthizer said Monday that the Trump administration will increase tariffs on $200 billion in Chinese goods early Friday. The prospect of higher tariffs had been first raised on Sunday by President Donald Trump, rattling investors who had anticipated that better progress toward a near-term resolution between the two superpowers.

Stock-market strategist says Wall Street should shake off Trump trade anxieties and ‘buy this dip’

Buy this stock-market decline on Monday.

That’s the recommendation of Fundstrat Global Advisors analyst Thomas Lee in a Monday research note, in the wake of a tumble by equity indexes across the globe partly inspired by an apparent escalation of Sino-American trade tensions.

President Donald Trump ramped up conflict between China and the U.S. after he tweeted on Sunday a threat to raise tariffs on $200 billion in Chinese imports to 25%, up from the current 10%, putting a tentative accord between the two countries in doubt ahead of negotiations set to begin this week in Washington.

The unexpected Trump announcement, coming as markets had held out apparent optimism over a near-term resolution, roiled global markets, driving China’s 399106, -5.25% Shenzhen Composite Index to a 7.4% loss, while the CSI 300 Index 000300, -4.61% tumbled 5.8% and the Shanghai Composite Index SHCOMP, +0.69% lost 5.6% on Monday.

Domestic markets also got whacked, with the Dow Jones Industrial Average DJIA, -1.79% , the S&P 500 index SPX, -1.65% and the Nasdaq Composite Index COMP, -1.96% on track for the steepest slides, at their intraday lows, since March 22, according to FactSet data.

However, Lee says there is reason to be a buyer in this downbeat environment.

He points to the fact that markets had been near records already, including the Nasdaq, which finished Friday at an all-time high, with the S&P 500 not far behind. The strategists said that even though some bears might argue that the heightened trade tensions represent an opportune period to take some chips off the table, or sell down holdings, it might be a lost opportunity for bulls because stock-supportive factors remain in force.

“Retail investors have been selling stocks and buying bonds so far in 2019. And hedge fund net long positions are among the lowest levels in 5 years. Hence, only the long only funds are fully exposed to equities. With so much on the sidelines, markets near highs, and with manager underperformance, we see this dry powder as a key dynamic,” Lee wrote.

The Fundstrat analyst also makes the case that the trade spat might prompt the Federal Reserve to remain “market friendly” by holding off on near-term interest-rate increases.

Lee said, “Unlike 2018, where the Fed seemed blinded by data dependency, we believe any mounting financial stress will be met by an eventual Fed response.”

Around the Web:

Fed stays patient: As expected, the U.S. Federal Reserve on Wednesday kept interest rates unchanged, and Chairman Jerome Powell said that, for now, the Fed doesn’t see a strong case for moving rates up or down. Powell also tried to downplay concerns that recent softness in inflation could indicate underlying weakness in the economy.

CPI ahead: A government release on the Consumer Price Index that’s scheduled to come out on Friday will be one of the week’s most closely watched reports, as a recent downturn in inflation has generated plenty of talk among monetary policymakers. In March, so-called core inflation, which strips out volatile food and energy prices, rose at an annual rate of just 1.6%, down from 1.8% in the prior month.

Dow Jones 10 years ago Today: +17,556 Points (208.77%)

Other Notable Indices (YTD)
Russell 2000 (small caps) 17.33
EAFE International 11.05
EAFE Emerging Markets 10.03

The views presented are not intended to be relied on as a forecast, research or investment advice and are the opinions of the sources cited and are subject to change based on subsequent developments. They are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investments.