The latest on trade. According to Reuters, President Trump told reporters that the trade war with China was “a little squabble” and his friendship with President Xi was “unlimited,” while continuing to insist that talks hadn’t collapsed. Additionally, Politico reported that President Trump was less concerned with market volatility than in the past, as he thinks the economy is strong enough to withstand the tariff discussions. The general consensus was that both sides were close to a deal two weeks ago, however, China reneged on several major concessions (specifically intellectual property and technology transfers). According to the Financial Times, the Chinese foreign ministry spokesman said it was actually Washington that repeatedly tried to change terms of the deal midway through the talks. We continue to think a resolution can happen, although it could take longer than originally expected. The next big date is the end of June and the G20 meeting in Japan, as both President Trump and President Xi are scheduled to attend and further discuss trade.
Let’s talk about pullbacks. After a 4.6% pullback for the S&P 500 Index, stocks bounced yesterday as President Trump tried to defuse trade tensions. On Monday, stocks had their worst day since January, then, yesterday, followed that up with their best day in a month. Please be sure to read yesterday’s blog, as it explained our thoughts on the recent market weakness. Today on the LPL Research blog we will take another look at market pullbacks and show why they are actually quite common. In fact, the average year since 1950 has seen the S&P 500 correct at least 5% more than three times per year. Given there hasn’t been a single 5% correction yet this year, we think the odds do potentially favor more of a correction before major lows can be made.
Tensions remain high in the Middle East. The U.S. has ordered all nonemergency staff and personnel to leave Iraq immediately, as tensions increase with Iran over recent attacks against oil tankers and facilities in the Persian Gulf region. Tensions jumped in the region after the U.S. claimed that Iran was behind attacks on four oil tankers over the weekend. Geopolitical concerns are always a risk and this is one that we will be monitoring closely.
Retail sales disappoint. Sales in April dropped for the second time in three months declining 0.2% month over month, well short of consensus of +0.2%. Weakness was driven by soft auto and building material sales with motor vehicle and part sales down 1.1% after modest gains in March. However, food and beverage, food services, and department stores stood out with monthly increases. May Empire State Manufacturing increasing 7.7 points month over month to +17.8, well above consensus of 8.5. Some investors have pointed to weakening consumer data in their case for a Fed rate cut, but we believe that the bar for a rate cut is high and see the Fed’s continued pause as the most prudent approach given over 3% gross domestic product growth, healthy wage growth and a labor market close to full employment.
- 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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