Market Update: Tue, May 7, 2019 | LPL Financial Research

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Daily Insights

Rough ride. Yesterday was a rough ride for U.S. equity investors, even though the overall loss wasn’t as notable. The S&P 500 Index sold off as much as 1.6% intraday, then rebounded to close down 0.4% as investors digested a slew of trade-related headlines. S&P 500 futures are down slightly today amid more news: the U.S. announced it would implement additional tariffs on Chinese imports, and China threatened their own retaliatory measures. Still, China and U.S. officials are still scheduled to meet Thursday to continue trade talks.

Global stocks slide, U.S. yields fall. Volatility was relatively high in markets outside of the U.S. yesterday as trade headlines rattled global investors. Emerging markets stocks dropped the most since December, dragged down by a 5.6% slide in Chinese equities, and the MSCI EAFE Index fell the most since March. Global investors eyed U.S. government debt for safety, as has been the case all year, pushing the 10-year Treasury yield down the most since March 27. We’ve maintained all year that U.S. government debt is attractively valued in an ultra-low rate environment, and yesterday’s yield action was another example of this. We expect a trade resolution and a stabilizing global environment to help lift longer-term yields as the year progresses.

The benefits of diversification. Diversified investors have had a big four months. U.S. stocks posted their best start to a year since 1987, while bonds (represented by the Bloomberg Barclays U.S. Aggregate Index) notched their best start since 2016. Even though stocks’ and bonds’ correlations have broken down so far this year, we expect U.S. fixed income could act as a vital hedge and source of liquidity as stocks move into what has historically been their choppiest part of the year. We’ll dive into the strange year for correlations in today’s LPL Research blog post.

Credit conditions remain accommodative. The Federal Reserve’s survey of senior loan officers, released yesterday, indicated that banks eased commercial and industrial loan lending standards in the first quarter of the year amid softening of demand, while at the same time only moderately tightening standards elsewhere. Tightening credit conditions is expected this late in the business cycle, and lower demand for business lending wasn’t surprising given first-quarter volatility. Overall, the report shows excesses in credit remain in check.

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Tuesday

  • JOLTS Job Openings Report (Mar)
  • Nikkei Japan Services PMI (Apr)
  • China Trade Balance (Apr)
  • China Exports (Apr)
  • China Imports (Apr)

Wednesday

  • Germany Industrial Production (Mar)
  • China Trade Balance (Apr)
  • China Exports (Apr)
  • China Imports (Apr)
  • China CPI Report (Apr)
  • China PPI Report (Apr)

Thursday

Friday

  • CPI Report (MoM, Apr)
  • Monthly Budget Statement (Apr)
  • Germany Exports (Mar)
  • Germany Imports (Mar)
  • UK GDP Report (Preliminary, Q1)
  • China Foreign Direct Investment (Apr)

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Index data obtained via FactSet

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