Market Commentary - May 29th, 2019

Index Performance Recap
5/10/2019-5/24/2019 -1.92% -3.74%
YTD 12.73% 12.28%
SPX Sector Leader/Laggard Performance
Leader Laggard
Utilities Energy
5/10/2019-5/24/2019 2.85% -4.12%
YTD 12.39% 6.64%

The story in the markets over the last two weeks has been primarily about the escalating trade tensions with China and the blacklisting of Huawei by the US Commerce department.  The S&P 500 was down both weeks to make three straight weekly declines.  The announcement by the US Commerce department to restrict US tech firms from selling chips to Huawei last week sent the Philadelphia Stock Exchange Semiconductor Index sharply lower as the ramifications of the move took several days to digest.  The announcement on Monday that Huawei would still be able buy US goods until August 19th did little to halt the slide.  Closing around its intraday low today, the SOX Index is down nearly 10% since the announcement.  The weakness in chip stocks spread to broader technology stocks in general and the sector was the second worst performer over the last two weeks.

On the economic front, data for the last two weeks was mixed with weaker April retail sales and industrial and manufacturing production, but stronger April housing starts and building permits and a stronger May NAHB survey.  This week, the May flash PMIs and soft capital goods orders were softer, but it is imperative to note that all of these economic data points tend to be volatile.  This lack of stronger economic data is serving to keep a lid on growth expectations for companies within the S&P 500 and is therefore keeping the index from breaking out to new highs for the time being.  The risk today would seem to be to the downside as 2800 support has been tested already and could be tested again.  Further deterioration in trade relations with China could take us there, but a surprise to the upside is always possible as well.  The next scheduled meeting between President Trump and President Xi is at the G20 conference in Japan on June 28-29th.

The FOMC minutes were released on Wednesday this week and the minutes revealed that the Fed is pretty supportive of chairman Powell’s view that low inflation is “transitory”.  While the markets have been increasingly pricing in a rate cut by the end of this year, these minutes would appear to raise the bar for that to happen.

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