Market Direction: BEARISH alert issued 5/23/2019
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Market Direction Week Review: Stocks
declined for the fourth week in a row amid rising trade tensions and
geopolitical uncertainty. The White House announced the U.S. will impose
tariffs on Mexico due to the border crisis, adding to concerns about the
unresolved U.S.-China trade issues and their impact to global growth. While May
marked the most sizable stock market pullback this year, bonds rallied
significantly, helping stabilize portfolios. U.S. and global yields declined,
with the 10-year Treasury ending at 2.13%, the lowest level in 21 months, and
German yields dipping further into negative territory. Market volatility tends
to rise during times of greater uncertainty when expectations are changing.
On
Wednesday (5/29) special counsel Robert Mueller held a press conference in
which he explained why his previous investigation failed to indict the
President on obstruction of justice charges. He pointed out that the summary
report did not conclude that the President had not committed a crime, but that
any indictment would need to come from Congress. Mueller announced the Russia
investigation is now closed and he is resigning from the Justice Department to
return to private life. He concluded by saying that the report could be taken
as his testimony and that he has no intentions of testifying further in front
of Congress.
Separately,
late Thursday evening (5/30) President Trump announced that he intends to
impose a 5% tariff on all imports from Mexico beginning June 10, unless it
takes “decisive measures” to curb illegal immigration to the U.S. from Mexico.
Those tariffs would also be increased incrementally to 25% through October 1.
What constitutes decisive measures, was not clearly defined, but would be
determined by the Trump administration. Not only were financial and currency
markets rattled on Friday (5/31), but this also adds substantial complication
to the not-yet-approved USMCA. Until the USMCA is passed, NAFTA remains in
effect, and these tariffs would seem to be in violation of that treaty.
Following
the announced resignation of British Prime Minister Theresa May last week, the
UK [hard] Brexit party won the majority of seats in EU elections. This may
increase the odds that a leader seeking a no-deal Brexit will take over the
Prime Minister spot in July. Meanwhile, the EU elections overall showed a
divided perspective on the future of the Union. A weaker than expected outcome
for populist parties coupled with the loss of the existing majority held by the
European People’s Party and the Social Democrats clouded the path forward.
Following
last week’s escalation of the U.S./China trade war, where President Trump
announced a partial ban on the sale of US technology to Chinese telecom giant
Huawei, this week China said it would postpone any future “goodwill” purchases
of American soybeans until the trade dispute is resolved. Any resolution or
even progress is unlikely to come until the G20 meeting in Osaka Japan on June
28-29, in which President Trump and Chinese President Xi are tentatively
scheduled to meet.
How the market finished last week, the S&P 500 down
2.6%, the Nasdaq down 2.4%, and the Dow down 3.0%.
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Market Direction This Week: We track the stock
market based on our Bullish and Bearish Alerts a Bearish Alert recently
started on 5/23/19 and since the Alert the stock market indexes have fallen
tremendously. Taking new positions at this time should be done with caution. We
will continue to advise you of the current stock market conditions (see Market Direction Mid Week Update: Trading Strategies).
While
a market downturn hasn’t always happened in May, in the past 19 years there
have been 13 pullbacks that began in May and 5 others that happened within 2
weeks before or after May.
As
President Trump stated in a tweet back in December and numerous times since, “I
am a tariff man.” This week he affirmed that stance by threatening tariffs on
Mexico in an attempt to curb illegal immigration, even as the tariff battle
with China continues.
Earnings
season is basically over, and with few (if any) upside catalysts on the
horizon, trade/tariffs will continue to dominate the market’s movements in the
near-term. Geopolitical relief not likely to come until the G20 meeting in
late-June, at the earliest.
When
the SPX was less than a point below its recent all-time high on 5/3, based on
history, a late-spring and possibly
summertime pause seems likely…this market seems ripe for another downturn…it is
probably on the near-term horizon." Since that date, the SPX has
fallen over 157 points (-5.3%). Getting back to record highs again probably will
not happen until a new trade agreement is reached with China.
Economic
Calendar: ISM Manufacturing Index (6/3), Factory Orders (6/4), ISM Services
Index (6/5), Employment Report (6/7)
Some of the major earnings announcements on deck: CRM, TIF, FIVE, BYND, OLLI.
$tockMarketDirection proprietary model is currently BEARISH. We strongly encourage you to monitor positions closely, exercise proper money management strategies and follow us at $tockMarketDirection for ALERTS we may issue advising a change in the current market direction. Stay tuned and follow us. If you have a testimonial or comment of how this website has helped you we would like to know, email us. Building a community of investors one trade at a time. Share with a friend. Cha-ching!
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