Weekly market update

Is anyone else completely exhausted with talking about trade issues? I’m having trouble thinking of new ways to write about it. Oh, but wait, on Friday, the President threw us another curve and said he was going to slap tariffs on Mexico over immigration.

The Dow has now fallen the last six weeks in a row, something that hasn’t happened in eight years. When was the last time? It fell seven weeks in a row in May and June of 2001. (Didn’t even happen in 2008!)

Welcome to June! And we are glad to see May go—it was a rough month: The NASDAQ was down 8.7%, the S&P 500 was down 6.6% and the Dow fell 6.4%. An old tech bellwether, Apple fell 17%, the worst performer in the Dow for May.

But, to put things into perspective, the S&P 500 is down 6.9% from its high 30 days ago. This is normal behavior in markets (no reward w/o risk). What we saw in the first four months of the year (+17%, no drawdown >2.5%—was abnormal).

It’s hard to make the case right now for the S&P 500 to move significantly higher, and it’s relatively easy to make the case for it doing the reverse.

So, my latest thoughts on trade with China—contrary to numerous statements by the President and the administration over the past six months, I’m beginning to suspect that a “trade deal with China” may in fact, not be imminent. And the latest—it hasn’t been China that has been the source of sudden escalation; nor Iran; nor North Korea; nor Turkey, who admittedly gave it a good go in announcing they may install Russian S-400 anti-aircraft missiles in the area of the Mediterranean. No, it was Mexico. (Or rather President Trump, which is less of a surprise.) The six million U.S. jobs that are dependent on trade with Mexico are now threatened, mostly in the automotive industry.

Something else we are keeping an eye on—the yield curve inversion is deepening in the U.S., and rates are falling around the world, even as stocks rebound modestly. This bears watching as the bond and stock markets are sending divergent messages, although Transport stocks and the Russell 2000 are agreeing with bonds!!

Just a few short months ago, the markets were concerned about the FED hiking rates in 2019. Fast forward to today and the probability of a rate cut at this month’s FED meeting just shot up above 50%! That’s right…a rate CUT!  And not just one, some out there are calling for two to three rate cuts over the coming months and into next year. Talk about an about-face.

June has not been one of the better months for stocks and with trade skirmishes with just about everyone, June could be a rough month for stocks. We will get manufacturing and employment numbers later in the week, but all eyes will be on trade skirmishes. So, stay tuned and we’ll keep you posted.

Todd Day, MBA
Portfolio Manager
Horizon Financial Services, LLC
June 3, 2019

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