May 10, 2019 – Ryan Puplava gives this week's market wrap-up on Financial Sense Newshour discussing the turn of events from new all-time highs in the S&P 500 as Trump's tweet and new tariffs rattle stocks. Next, John Kosar at Asbury Research gives an update on the technical outlook for stocks, oil, bonds, interest rates, and much more. Lastly, Joe Dancy tells Financial Sense Newshour that energy investors need to be prepared for some major surprises in the weeks and months ahead.
Wrap-up: This week was about two things: Profit-taking and a technical posture that has finally changed on this market and, secondly, headline risk. The S&P 500 closed at new all-time highs on a closing basis last week and basically a straight shot up from the December low, for a 25% gain in just over 4 months. For that rate of change to continue the market would basically be up 100% by year-end. That’s a tough thing to sustain. So technicians and strategists have all been talking about a congestion time since February. It’s finally here in the way of a 3% dip so far off of a tweet that was heard ‘round the world Sunday night.
Sunday, President Trump tweeted "The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!" This was followed by "The 10% will go up to 25% on Friday. 325 Billions Dollars....of additional goods sent to us by China remain untaxed, but will be shortly, at a rate of 25%." Immediately, the Dow Jones Industrial Average futures fell 450 points, which was about 1.7% at the time. Trump doubled down Monday morning and tweeted “The United States has been losing, for many years, 600 to 800 Billion Dollars a year on Trade. With China we lose 500 Billion Dollars. Sorry, we’re not going to be doing that anymore!" Interestingly, there was buy the dip mentality that almost recovered all of the losses on Monday. However, on Tuesday, de-risking continued as trade representative Robert Lighthizer shed more light on details that China had reneged on parts of the agreement they thought were already committed and cemented. The selling in the early part of the week was very broad-based and indiscriminate.
Finally a couple times this week the stock market rallied on hope of a deal. On Wednesday, Trump tweeted that Chinese Vice Premier Liu He was coming to make a deal, to which he said, we’ll see. Thursday Trump said he had an excellent alternative to a Chinese trade deal, without specifics. But I think we can all assume he means tariffs. And also on Friday, Treasury Secretary Mnuchin said negotiations were constructive which really translates to “on-going”. Trump also tweeted Friday he’s in no rush to make a deal and feels comfortable to allow the higher tariffs to remain in hopes the Chinese will negotiate. All-in-all what’s clear is that the trade deal, one investors thought was in the bag a month ago, is still uncertain.
So we’re telling clients to expect some headline volatility in the near term and we aren’t so confident one will be accomplished any time soon. Technically, some buying interest is showing up just under the 50-day moving average and that’s good to see to hold up this dip, but if fears escalate that these new tariffs could add to economic weakness for China, it could result in lower global growth expectations. My own thoughts on the matter is that we’re asking too much for the Chinese such as changes to their laws. Most likely we’ll get a response where China agrees to make certain purchases like they have over the past year to help reduce the budget deficit.
So where things left off on trade this week, tariff rate increased from 10% to 25% on $200B of Chinese imports and it looks like Trump is planning 25% on the rest, which is another $325 B of imports being made.
On another note, UBER released its initial public offering on Friday. It came in lower than some of the higher expectations and opened at $45 a share. At $45 that values the company at around $75.5 bln. The CEO said on CNBC they wanted to take a conservative approach in the wake of LYFTs IPO last month. Expect continued market volatility on headline risk and watch the technical setups like the 50-day moving average for the S&P 500. It wasn’t likely with this strong of trend to break it on the first go, but it does appear vulnerable to profit-taking at this time.