Weekly market update
Following the pullback for stocks in May, the S&P 500 had its best weekly performance in 2019 in the first week of June, already reclaiming most of May’s decline even as President Trump tweeted out about slapping tariffs on Mexico.
Stocks were sent to a downward spiral by a Trump tweet on May 5 threatening to impose tariffs on Chinese imports. The Dow posted a six-week losing streak, while the S&P 500 suffered its worst month since December in May amid the escalated trade war. Now the market has made back most of the losses with the Dow just under 3% from its all-time high and the S&P 500 about 2% from its record.
Fed Chair Jerome Powell signaled an openness to cut interest rates if necessary. In remarks last week, he said, “We are closely monitoring implications of these developments for U.S. economic outlook and will act as appropriate to sustain the expansion.” And with those comments, the Dow rose more than 500 points. So, the equity markets are saying that we can stick to a multi-front trade war as long as the Fed cuts some rates.
So, right now all eyes are on the FED. But all eyes should be on the President as well.
How does he handle the growing evidence that the economy has entered choppy waters? Does he rethink tariff threats? Double down? That crucial decision could determine the 2020 election.
We got the latest jobs report. The May jobs report was a big miss, only adding 75,000 new jobs, so stocks soared on renewed rate cut hopes. After weaker than expected jobs report, FED Funds Futures are showing 78.3% odds that we get a rate cut by the July 31st meeting. My personal thinking is that companies are running out of people to hire. First, it was just highly skilled workers and now they are struggling to find low skilled workers.
In other economic news, May’s ISM manufacturing slipped even further. This was the lowest reading since the 2016 elections, but internally, employment rose as well as new orders. So maybe the data is not as soft as the headline numbers represent. Also, factory orders grew at their slowest pace since the election in 2016.
Over the weekend, the President announced he had made a deal with Mexico and that he would not be implementing the tariffs he threatened them with last week, and stocks continued their move higher. In the past week, we have seen stocks go from highly oversold to back to overbought. We have a FED meeting coming up next week so we will see if they cut rates or say they are prepared to cut rates. So, we’ll be watching and we will keep you posted.
Todd Day, MBA
Portfolio Manager
Horizon Financial Services, LLC
June 11, 2019
