Sector Investing

[ReturntoSender]

Stocks, yields, and oil drop after Mexico tariff threat
31-May-19 16:15 ET
Dow -354.84 at 24815.04, Nasdaq -114.57 at 7453.12, S&P -36.80 at 2752.06

https://www.briefing.com/investor/markets/stock-market-update/2019/5/31/stocks-yields-and-oil-drop-after-mexico-tariff-threat.htm

[BRIEFING.COM] U.S. stocks, Treasury yields, and oil prices all dropped on Friday after President Trump surprised the market by threatening to impose a 5% tariff rate on all goods imported from Mexico. Friday's 1.3% decline in the S&P 500 sent it below its 200-day moving average (2776) and extended its weekly decline to 2.6%.

The Dow Jones Industrial Average (-1.4%), the Nasdaq Composite (-1.5%), and the Russell 2000 (-1.4%) extended their weekly losses to 3.0%, 2.4%, and 3.2%.

The 5% tariff rate will go into effect on June 10 and will increase incrementally during the summer to reach 25% on Oct. 1. The White House could remove these tariffs altogether if Mexico makes a concerted effort to curb the flow of undocumented migrants entering the U.S.

The news catalyzed de-risking efforts, leading to eight of the 11 S&P 500 sectors finishing with losses over 1.0%. The utilities (+0.5%) and real estate (+0.8%) sectors finished higher amid a steep drop in U.S. Treasury yields.

Another trade dispute on top of a U.S.-China trade war with no clear end in sight fueled ongoing concerns that trade tensions will lower economic, and earnings, growth prospects.

China added to these fears after it announced that it is drafting a list of unreliable foreign entities that harm the interests of its firms, increasing speculation about Chinese retaliation against the U.S. On a related note, China's manufacturing sector slipped into contraction in May.

Global growth concerns were transparent by the 5.2% drop in WTI crude ($53.48/bbl, -$2.92) and by investors seeking safety in a crowded U.S. Treasury market. The 2-yr yield dropped 12 basis points to 1.94%, and the 10-yr yield dropped nine basis points to 2.14%. The U.S. Dollar Index fell 0.4% to 97.76.

In corporate news, shares of General Motors (GM 33.34, -1.48, -4.3%) underperformed on the Mexico tariff threat. Dell Technologies (DELL 59.55, -6.86, -10.3%), Gap (GPS 18.68, -1.92, -9.3%), and VMware (VMW 176.98, -14.11, -7.4%) disappointed investors with their earnings results, while Uber (UBER 40.41, +0.61, +1.5%) pleased investors with its results.

Reviewing Friday's economic data, which included Personal Income and Spending data for April, the PCE Price Index for April, the final University of Michigan Index of Consumer Sentiment for May, and the Chicago PMI for April:

Personal income increased 0.5% in April (Briefing.com consensus 0.3%) on top of a 0.1% increase in March. Personal spending rose 0.3% (Briefing.com consensus 0.2%) on top of an upwardly revised 1.1% increase (from 0.9%) in March. The PCE Price Index was up 0.3% m/m, as expected, while the core PCE Price Index, which excludes food and energy, jumped 0.2%, as expected.
The key takeaway from the report is that real PCE was unchanged in April. That will be another data point that leads to forecasts calling for much slower real GDP growth in the second quarter than the 3.1% real GDP growth seen in the first quarter.
The final May reading for the University of Michigan Index of Consumer Sentiment checked in at 100.0 (Briefing.com consensus 101.5) versus the preliminary reading of 97.2.
The key takeaway from the report was the acknowledgment that "confidence significantly eroded in the last two weeks of May" on account of concerns about the tariff actions.
The Chicago PMI for May increased to 54.2 from 52.6 in April.

Looking ahead, investors will receive the ISM Manufacturing Index for May and Construction Spending for April on Monday.

Nasdaq Composite +12.3% YTD
S&P 500 +9.8% YTD
Russell 2000 +8.7% YTD
Dow Jones Industrial Average +6.4% YTD