STOCKS SAG IN FRONT OF HOLIDAY WEEKEND

Stocks gapped up at the open but quickly lost momentum. The Dow is currently up 26 points and the SPX is up .25%. Most sectors are bouncing back a little after yesterday’s rout. But the energy sector continues to struggle under the weight of rising crude inventories. The market is of course wandering aimlessly on Tweets and headlines regarding trade. European markets closed up by about .6% and most of Asia was modestly higher overnight. Commodities are having their worst week so far this year, dented by trade & global growth fears. Copper is down 1.6% today (and nearly 9% so far this month) on China jitters. WTI crude oil is flat, trading around $60/barrel. Bonds aren’t moving much today after strong gains earlier this week. The 10-year Treasury yield is hovering around 2.32%.

Today, President Trump predicted a quick end to the trade war. And in a Bloomberg interview China’s ambassador to the US said his government wants to continue negotiating toward a trade deal. However, he also implied his country will retaliate if the Trump Administration doesn’t back down from targeting Huawei. “If things are moving in the wrong direction, then you could see a response very soon.” The Trump Administration put Huawei on an export blacklist, which is in effect cutting the company off from its US suppliers and customers.

April’s durable goods orders disappointed investors. Orders for business equipment meant to last 3 years or more fell 2.1% in April from March levels. And given the fact that March orders were downwardly revised, that 2.1% decline looks even worse. It’s reasonable to assume that the simmering trade war and slowing global economic growth are causing CEOs to rethink their plans for investment and growth. But while investment spending has clearly lost some momentum over the last year, the trend isn’t yet alarming. A key subset of orders that measures US corporate capital spending —capital goods orders excluding aircraft and defense equipment—looks be stabilizing at about 2.5% year-over-year growth.

Economist Ed Yardeni acknowledges trade war uncertainty will cause higher stock market volatility, but says institutional investors aren’t panicking. Both sides need a trade deal, and it will likely come at some point. But investors shouldn’t be fixated on trade. The US economy is largely driven by consumer spending. That’s what we should pay attention to, and it’s holding up well.


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