No Quarter

No quarter.  Stocks gave no mercy to investors yesterday as trade fears and disappointment in the Fed sent shares lower.  Continued fallout from the Huawei ban sent chip manufacturers down and increased crude supply put the energy sector into a tailspin.

 

 

MY TWO CENTS:

 

  1.  All is not OK with the economy.Yesterday’s economic releases were less-than-gleaming… put nicely.

–  Markit Manufacturing PMI came in at 50.6 missing its 52.6 estimate.

–  Markit Services PMI also missed its estimate and came in at 50.9.

–  New Home Sales fell by a greater than expected -6.9% month over month.

What this means: Manufacturing, which has been lagging, came in just above 50 which is the line between growth and slow-down.  Services represent roughly 80% of the jobs in the US economy and a slowdown is not a good thing.  According to Markit, employers are scaling back hiring as a result of slowing demand for services.  A decline in home sales as interest rates are coming down should raise some eyebrows, not to mention that the housing market is considered a leading economic indicator due to its sensitivity to confidence and reliance on labor.

 

  1.  Semiconductor stocks are feeling the heat.In the wake of the Huawei blacklist announcement traders are selling chip manufacturers that are going to be impacted by the ban.  But alas, there is hope because WHILE YOU SLEPT President Trump announced, amongst other things, that the Huawei ban can be part of a trade deal.

–  The Philadelphia SOX Index, which tracks semiconductor companies has fallen by -9.05% since the President signed the executive order.

 

THE MARKETS:

 

Stocks were under pressure yesterday as a steady stream of bad news sent shares tumbling.  The energy sector was hardest hit yesterday, falling by -3.13% in response to a buildup in crude supply announced by the DOE and reported here yesterday.  Information Technology was also under pressure yesterday, falling by -1.73% in a continued fallout from the Huawei ban.  The S&P500 fell by -1.19%, the Dow Jones Industrial Average dropped by -1.11%, the Russell 2000 sold off by -1.97%, and the tech-heavy NASDAQ 100 slipped by -1.52%.  Bond traders were quick to respond to yesterday’s weak economic numbers trading bonds up leaving the 10-year treasury yield at 2.31%, down by 7 basis points.  Ten-year yields are at their lowest since late 2017.  The 3-month / 10-year yield curve remains inverted at -4.4 basis points.

 

 

WHAT’S NXT?

 

–  Traders will focus on British PM Theresa May’s announcement that she will be stepping down on June 6th, increasing the possibility of a no-deal BREXIT.

–  Durable Goods Orders are expected to show a monthly decline of -2.0% versus last month’s growth of +2.6%.  This is an early indicator and is looked at closely.

–  Baker Hughes Rig count is expected to show 984 rigs versus last week’s 987.  In the wake of crude’s precipitous drop yesterday, traders will watch this one closely.

–  Foot Locker announced this morning and missed earnings by -4.6%

–  Next week we will get reads on Consumer Confidence, 1Q GDP, and Fed-favorite inflation indicator PCE deflator

 

US Markets are closed on Monday in observance of Memorial Day.  Have a great weekend!

daily chartbook 2019-05-24

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