The major stock market averages gapped down at the open today (Dow -177 pts; SPX -.33%). Utilities and communications sectors are modestly higher, but most everything else is in the red. The energy sector is down .8% along with oil prices. Industrials are down 1% on weakness in Boeing (BA). European markets closed lower by about .3%, whereas Asian markets are up overnight. The Bloomberg Commodity Index is down .2% mostly due to oil. WTI crude fell back under $64/barrel after achieving a 5-month high yesterday. Bonds are a bit higher in price, lower in yield today. The 10-year Treasury yield edged down to 2.49%. The difference between the 2-year and 10-year Treasury yields—referred to as a yield curve—is still very flat at about .15%. It has been hovering between .11% and .20% for the last four months. This is not generally a condition accompanying a strong economy. And it is one of the reasons that the Federal Reserve is hesitant to resume short-term interest rate hikes.

The S&P 500 Index rallied for eight straight days coming into today’s session. And it has retraced close to 90% of its 2018 bear market correction. Near-term, it’s safe to say that stocks need to consolidate here. Any headline or economic report could be a catalyst for this. For example, The Trump Administration today threatened new tariffs on good imported from Europe. It should be said, however, that this wasn’t some off-hand, temper-induced Tweet fit. It turns out the US Trade Representative announced it is preparing tariffs on $11bil of European imports in retaliation for Eurozone subsidies provided to Airbus SE. This is obviously a long-running dispute, and the Trade Rep’s office said it will delay imposition of the tariffs pending a ruling by the WTO. In other words, the Trump Administration is playing by long-established rules this time, but that didn’t stop the media from crafting an incendiary new headline from the event.

CNBC Contributor Josh Brown says “We’re in a really good place now in the market.” He notes biotechs, semiconductors, and transports are all doing well. These are typically groups that outperform only when investor sentiment is strong. He also notes that economic data is starting to look better. “But let’s recognize, this could turn on a dime the moment someone starts to get negative about something.” In other words, stocks have nearly recovered what they lost in late 2018, and just like then, it would be easy for negativity to creep back in and spark volatility.

The Nat’l Federal of Independent Business (NFIB) released its monthly sentiment survey of small business leaders. The optimism index rose to 101.8 in March from 101.7 in the prior month. Historically, readings over 100 are considered healthy, but it is true that the index has been weaker since last summer. Optimism soared after the last presidential election, and reached multi-decade highs last August due partly to corporate tax reform. Bloomberg reports there are two takeaways from the latest report. First, the labor market is very tight and wages are rising. Second, there is a temporary inventory overhang. That is, more businesses are reporting high inventory levels, suggesting they won’t be ordering more until current stocks are sold off. This makes sense vis-à-vis other recent economic data (i.e. softer readings for the ISM Manufacturing Index). But it is most likely a temporary problem for the economy.

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