April 2, 2018

Stocks opened lower this morning (Dow -560 pts; SPX -2.6%). All eleven major market sectors are in the red in early trading. Tech, energy and consumer discretion are down the most. The VIX Index jumped up to 22 and VIX April futures are trading up around 21. Copper and gold are up about 1% but most other commodities are down this morning. WTI crude oil is down 2.8% to trade around $63.10/barrel. Bonds are modestly higher in price, lower in yield. The 5-year and 10-year Treasury note yields are hovering around 2.56% and 2.74%, respectively. 

Technicals are critical in this market environment. The SPX, which just touched 2,575, is clearly testing a couple of support levels: the March 23rd low of 2,586; long-term trend support at 2,600; the 200-day moving average at 2,590. Because those levels were breached moments ago, we can reasonably expect the index to trade down and test its February 9th intraday low of 2,532. Keep in mind, the stock market is still in a normal recovery process from a routine correction. Trade volume is not terribly high, and there are few signs of panic. But the machines are again in control.

ISM’s Manufacturing Index edged lower to 59.3 in March vs. 60.8 in February. That’s roughly as expected and (despite the dip) signals continuation of a very strong trend in business activity. Remember, any reading over 50 indicates improving business conditions. In fact, the index has just posted its strongest calendar quarter since 2004. Survey respondents did cite trade tensions as a primary concern, but they also said new product orders are strong, hiring continues apace, and overall domestic demand is solid. 

If there is a negative in the ISM report, it is that “prices paid,” or inflation, rose to a 7-year high. The question is whether some of that is due to rising trade tensions. According to Bloomberg, there is a direct relationship. Incidentally, tomorrow China will introduce new trade tariffs in retaliation for President Trump’s aluminum and steel tariffs. The tariffs will target 128 US-made goods. 

President Trump continues to hammer Amazon (AMZN) stock via Twitter. He said Amazon is one reason why the US Postal Service is losing money, and that the online retailer is responsible for driving some traditional retailers out of business. The president implied Amazon has an unfair competitive advantage. He tweeted, “Not a level playing field.” He threatened, “…this will be changed.” AMZN is down nearly 16% from its March high. Bloomberg says Trump tweets are directly responsible for 11 of those 16 percentage points. 


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