Volatility resources. U.S. stocks’ slide deepened May 13 with the worst one-day sell-off since January 3. The S&P 500 Index now sits 4.6% from all-time highs reached two weeks ago. While it has been a turbulent May for investors, it’s important to consider how quickly U.S. stocks have recovered this year, and how prone the S&P 500 has been to a mid-year bout of volatility. We’ve written several Weekly Market Commentaries (Deal or No Deal, Sell in May?, Balanced Risk-Reward) and blog posts (What Does a Big First Quarter Mean?, The Waiting Game for Record Highs) addressing our cautious near-term stance for U.S. equities. John Lynch and Ryan Detrick have also covered our near-term views on recent podcast episodes (S&P 500 New Highs and More, Equity Allocation Moves to Market Weight), and John Lynch produced a Street View video explaining the rationale behind our market weight shift. We sum up our recent views in today’s LPL Research blog available now.
Trade tone improves, but expect more uncertainty. Positive comments by President Trump on trade progress yesterday are providing support for equity markets this morning, S&P 500 experiencing solid gains at the open. Negotiations are still in a delicate stage and we expect more brief bouts of increased uncertainty as the two sides tackle some of the difficult remaining issues, but our base case remains some kind of deal getting done over the next few months.
10-year yield drops. Treasury prices have jumped and yields have slid as global investors ramp up buying of U.S. sovereign debt for safety. The 10-year Treasury yield dropped seven basis points (0.07%) yesterday, its biggest decline since March 22, and closed just three basis points (0.03%) from a year-to-date low of 2.37%. Long-term yields have been subdued all year amid intense global buying pressure. We expect yields to pick up through the end of the year, though, as global uncertainty fades with trade resolution.
Yield curve inversion. The 10-year yield’s recent slide has spurred cautious signals in the U.S. yield curve. The spread between the 3-month and 10-year yield closed negative yesterday for the second such yield curve inversion of the cycle. While yield curve inversion is always worth monitoring, we’d be more concerned if the inversion deepens significantly, or other parts of the curve invert.
Small business optimism rebounds. The National Federation of Independent Business’ Small Business Optimism Index rose 1.7 points in April, its largest jump since May 2018 and the fourth consecutive monthly increase. Corporate sentiment slid significantly from September to January as U.S. companies processed trade uncertainty. As sentiment slowly recovers, we expect business spending may pick up as well.
NEW Market Signals podcast. Listen to this week’s episode, in which LPL Chief Investment Strategist John Lynch and Senior Market Strategist Ryan Detrick discuss economic news, a bad week for stocks, the continuing US-China tariff battle and more. Subscribe to the free Market Signals podcast series on iTunes, Google Play, Spotify, or wherever you get your podcasts!
- NFIB Small Business Optimism Index (Apr)
- Import Price Index (Apr)
- Export Price Index (Apr)
- Germany CPI Report (Apr)
- Eurozone Industrial Production (Mar)
- China Industrial Production (Apr)
- China Surveyed Jobless Rate (Apr)
- Retail Sales (Apr)
- Industrial Production (Apr)
- Germany GDP Report (Preliminary Q1)
- Eurozone GDP Report (Preliminary Q1)
- Japan PPI Report (Apr)
- Housing Starts (Apr)
- Building Permits (Apr)
- Philadelphia Fed Business Outlook (May)
- Initial Jobless Claims (May 11)
- Leading Index (Apr)
- University of Michigan Sentiment Index (Preliminary May)
- Eurozone CPI Report (Apr)
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