A Game of Trade

A Game of Trade.  Stocks futures were pummeled on a Presidential Tweet threatening increased tariffs causing stocks to open deeply in the red only to roar back later in the session as investors chose optimism as their thesis.  Trump had done it before, a stinging threat on the verge of the closing of a deal but this time things seemed different causing some indigestion.

WHAT YOU NEED TO KNOW:

1)  Maybe negotiations are really stalling.  Yesterday’s slingshot session was a result of fear which was quickly dismissed as traders attributed the President’s threat as bluster.  The turn-around was also assisted by the Chinese negotiating team announcing that it would still travel to Washington on Wednesday.  However… WHILE YOU SLEPT, trade reps Robert Lighthizer and Steven Mnuchin announced to reporters that trade talks were stalling with China, which appeared to be backing off from commitments.  The admission caused stock futures to trade off which will put some pressure on today’s open.

2)  Stocks valuations may be on the high side.  Yesterday’s extreme reaction in the stock market to Trump’s threat can be due, in part, to the fact that stocks are trading at above average price / earnings ratios (P/E), which is a basic, but highly quoted, form of valuation multiple.  More importantly, the move underscores the importance that traders are putting on a successful trade deal.

THE MARKETS:

For investors who don’t like volatility, yesterday would have been a good day to take a holiday from the markets as the Dow Jones Industrial Average opened down by -471 points in response to Trump’s tweeted trade threats.  Interestingly, the selling was somewhat rational, with companies having exposure to Chinese trade experiencing much of the pressure.  A lifeline came early in the session as the Chinese trade team announced they would still attend talks in Washington later this week causing the markets to trade straight up for most of the session with a close well off the lows but still down by -0.25%.  The S&P500 traded off by -0.45%, the Russell 2000 traded up marginally by +0.06%, and the NASDAQ 100 fell by -0.66%.  Bonds traded up in yesterday’s session with ten year treasury yields falling by -6 basis points to 2.46% (bond traders tend to be more pessimistic). The VIX Index, also referred to by some as the fear index, which tracks the volatility on options used to hedge against losses in the S&P500, closed at 15.44 yesterday, the highest since late March.  The index reached intra-session highs not seen since late January, highlighting investors’ increasing anxiety.

WHAT TO LOOK FOR TODAY:

This morning we will get JOLTS from the Bureau of Labor statistics.  The metric tracks job vacancies in the US and it is expected to show 7.35 million job openings compared to last month’s figure of 7.087 openings.  This morning we will hear from Allergan, Sprint, Dean Foods, and Mylan, amongst others.  After the bell releases include Lyft, Electronic Arts, TripAdvisor, ADT, Qorvo, and Papa John’s.  Today’s Fed speakers include Kaplin and Randal Quarles.  The SALT conference begins in Las Vegas today which is always good for interesting hedge fund soundbites.  Finally, the US Treasury will auction off $38 billion 3-year notes.

daily chartbook 2019-05-07

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