Stocks sank at the open, as is their custom this month. The Dow is currently down 367 pts and the SPX is down 1.5%. Energy is the worst performing sector, down 3.5% (see below). Most other sectors are down about 1% except the defensives (utilities, consumer staples, real estate). VIX Index June futures are trading up around 17, but that’s not considered elevated. There’s no real panic in the market, just a slow bleed on trade headlines. European stock markets closed down about 1.5% today and Asia was uniformly down overnight. The bond market is catching a bid—especially safe-haven Treasury bonds. The 10-year Treasury yield is down to 2.32%, the lowest level since November 2017.

So far this month, the SPX is down 4% mostly due to trade tensions with China. But there are other things going on here: oil, for example. WTI crude oil has fallen several dollars per barrel over the past few days on oversupply concerns. We first heard it from the CEO of Pioneer Natural Resources earlier this month. He said US shale-oil drillers are pumping too much crude oil and the industry needs to rein it in to avoid another oil price crash. And then over the last week we got a couple of US oil inventory reports showing higher than expected stockpiles. And of course, traders are wondering if China will cut back on oil imports from the US.

Don’t expect a quick resolution to the trade war. China’s Ministry of Commerce says trade negotiations can only continue if the US “adjust[s] its wrong actions.” One of those actions is the blacklisting of China’s Huawei, a global telecommunications equipment provider. The company and its CEO were found to be conducting industrial espionage on behalf of the communist government. In response, the Trump Administration has disallowed US companies from doing business with Huawei and other large companies around the world are following suit (Vodafone, Panasonic, etc.). The concern, of course, is that countries don’t want to build out 5G networks that they can’t trust.

Private research firm IHS Markit published its monthly survey of US business activity and the results were disappointing. Preliminary data for May suggest both manufacturing and service business activity has stalled. The manufacturing index fell to 50.6 (3-year low) and the services index fell to 50.9. Remember, with any business activity survey 50.0 is the dividing line between growth and contraction. Manufacturers said their top concern is re-ignition of the trade war with China. In addition, global economic growth has slowed over the last six months. Perhaps even more worrisome is the drop in the service index. The firm’s chief economist said, “With the service sector’s performance being a key gauge of the health of domestic demand, this broadening-out of the slowdown poses downside risks to the outlook.” This bears watching.

The volume of US home sales fell in April to an annualized rate of 673,000 units, and headlines today will probably make a big deal of the dip. But that’s misleading. A large revision to March sales data make April sales appear weak by comparison, but anything above 600,000 annualized units is pretty healthy. Unemployment is very low, wages are rising and mortgage rates are down this year. Those factors should support the housing market.

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