Uncategorized, Weekly Update

Caught Between Trade Fears and Earnings Reality

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Published May 17, 2019


This week was a perfect example of the current market environment. Monday’s plunge in the stock market continued the market’s negative reaction to recent trade talk news, as talks with China looked to experience a serious setback. The chart below shows the near “round trip” in Chinese stocks so far in 2019 as optimism around the talks has flowed and ebbed.

Chinese stocks

Offsetting the trade concerns were solid earnings from a couple of large companies in a variety of industries. Earnings reports from Cisco Systems and Walmart both cheered investors.

Cisco solid earnings

Walmart solid earnings

This leaded investors to push some stock indexes to new highs. The S&P Low Volatility index found support in its first visit to the 50-day moving average (blue line) and vaulted to new high ground.

S&P Low Volatility index to new high ground

Other market sectors jumping to new highs included real estate and consumer staples.

In short, stocks encountered their first real test of this year’s uptrend over the past couple of weeks. Pinned between hopes for a trade deal with China and corporate earnings that have generally come in better than feared, investors generally remain on board with stocks, giving domestic stock indexes support … for now.

Market Update

Stocks struggled to find new direction this week as the bulls and bears each found reason to cheer. Monday brought a -2% shellacking as fears of an all-out trade war between the U.S. and China dominated trading. Adding to the angst was a U.S. Supreme Court ruling allowing iPhone users to pursue an antitrust case against Apple (AAPL). The company’s stock was down almost -6% on the day. A +0.8% rebound in the broad market Tuesday helped investors regain their footing. More friendly words between the U.S. and China on trade appeared to provide support. President Trump’s announcement that he would delay imposition of any automobile tariffs by six months further helped investors look past their trade war fears leading to a +0.6% rise Wednesday. A 3rd straight day of gains Thursday as solid earnings from Cisco Systems and Walmart along with a push higher in housing starts gave investors reason to return to looking at a largely positive economic environment. The broad market added +0.9% to turn indexes positive for the week. It was not to last, however, as Friday brought another round of China-U.S. squabbles. That, along with weak results from China-related companies, reminded investors of the negative side of things in the current market. Stocks gave back -0.6% on the day.

A seesaw week in stocks left the S&P 500 (SPY) lower by -0.78% while the Nasdaq 100 (QQQ) dipped -1.06%. Small caps (IWM) fared worse with the Russell 2000 index sliding -2.41% and fail in its attempt to retake its 200-day moving average.

Warm wishes and until next week.