Stocks dropped at the open but quickly recovered after a positive consumer sentiment report. The Dow is currently flat and the SPX is down .28%. Utilities and healthcare sectors are up modestly. Most retailers are catching a bid as well. On the other hand, semiconductors, energy and industrials are in the red. European markets closed down about .4% and China’s markets dived more than 2% last night. Emerging markets funds have really underperformed this month on rising trade tensions. Commodities are mostly lower today. WTI crude oil is flat at about $62.90/barrel. Remember, oil is reacting to Iran’s terrorism, not to the US-China trade dispute. Bonds aren’t moving much, except at the long end. The 10-year Treasury yield is hovering around 2.39%. Bond traders are watching to see if the 10-year can hold above near-term support at 2.37%.

The University of Michigan’s US Consumer Sentiment index unexpectedly surged to the its highest level in 15 years. In addition, the survey’s near-term and long-term future expectations components rose to levels not seen since 2004. Consumer optimism is currently fueled by extremely low unemployment and rising wages, and such conditions tend to spur strong consumer spending. (Remember, about 70% of the US economy is consumer spending.) Unfortunately, the survey was conducted before the recent flare-up in trade tensions with China. And we know that higher trade tariffs on Chinese imports will act as an additional tax on retail goods. So while this report provides a great headline, it can’t be taken at face value.

Among investors and analysts, there are a million opinions about the outcome and impact of renewed trade tensions with China. Professor Robert Schiller—who is a market academic of sorts—says, “I think of it as theater” put on by “two strong politicians.” He viewed it as a “human interest story which bleeds over in to the market.” He says no one knows where we’re going with this trade dispute, but believes both parties have a strong incentive to eventually resolve it. On the other hand, JP Morgan’s David Kelly doesn’t expect a trade deal anytime soon, and sees “politics on both sides pushing us away from one.” He’s worried that the Trump Administration doesn’t really want a trade deal and would rather continue pushing back on China through the next presidential election. And dragging out the dispute could begin to impact our economy. Similarly, CNBC’s Jim Cramer is of the mind that the Trump Administration is pushing a long-term strategy to discourage US corporations from doing business in China. In other words, this issue could persist for some time. I get the sense that Wall Street is grasping for a plausible narrative, but the truth is that no one can guess what the Chinese government or President Trump will do tomorrow, next week, or next month.

The Conference Board’s US Index of Leading Indicators (LEI) edged higher in April, making three consecutive months of modest improvement. The index combines all sorts of data (i.e. credit demand, consumer expectations, average workweek, stock prices, unemployment insurance claims) to try and predict the trajectory of the economy six months hence. I think the best way to view the index is on a year-over-year basis, and that chart suggests US economic growth peaked in the middle of last year. Since then, LEI has slowed along with economic growth expectations. But it doesn’t yet indicate that we’re in trouble. LEI is up 2.7% from year-ago levels, and typically alarm bells don’t go off until it goes flat or negative.

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