Weekly Market Drivers | LPL Financial Research

Stocks Tumble as Trade Front Moves to Mexico

US: S&P 500 Index -2.6%, Dow -3.0%, Nasdaq -2.4%
Europe: STOXX Europe 600 -1.8%, German DAX -2.4% France CAC 40 -2.1%, U.K. FTSE 100 -0.8%
Asia: Japan Nikkei -2.4%, China Shanghai Composite +1.6%, Korea KOSPI -0.2%
Rates/Commodities: 10-Year Treasury yield -17 basis points to 2.13%, WTI crude oil -3.3%, COMEX gold: +0.3%

U.S. stocks fell 2% in the week, weighed down by a constant stream of trade-related headlines.

The White House announced it would impose a 5% tariff on all imports from Mexico, set to take effect June 10. The announcement also noted the rate will rise 5% each month thereafter to a cap of 25%. The announcement pushed the S&P 500 lower on Friday to its worst loss of the week. On the economic front, core Personal Consumption Expenditures, the Federal Reserve’s (Fed) preferred inflation measure, increased 1.6% year over year in April, below the Fed’s 2% target. Still, the first revision of the first-quarter gross domestic product (GDP) report provided some respite for investors fixated on negative headlines. Although headline growth was revised down to 3.1%, it was still the biggest first-quarter GDP gain since 2015, showing the U.S. economy remained resilient against trade and political headwinds. “We don’t think we’re heading for a recession in the near term, even after the latest trade escalation,” said LPL Research Chief Investment Strategist John Lynch. “Growth may slow as the expansion matures, but the U.S. economy has shown that it is durable enough to weather geopolitical storms.”

S&P 500 earnings season also wrapped up, with first quarter 2019 earnings growing about 1.5% compared to the prior year, according to Refinitiv. While the absolute growth percentage may not be much to write home about, we consider it a positive development given consensus estimates heading into Q1 called for a 4-5% decline. 75% of companies beat analyst expectations for earnings growth, with 57% of companies beating revenue estimates.

Overseas, China manufacturing data returned to contraction territory, as the May Purchasing Managers’ Index (PMI) fell to 49.4 from 50.1 in April (readings of 50 or greater is considered expansionary). Although trade tensions have heated up in recent weeks, the US Treasury Department’s semi-annual currency report to Congress found that no major trading partner met its currency manipulation criteria, despite criticism toward the Chinese Yuan. Track these and other important events on our Weekly Global Economic & Policy Calendar.

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