The tweet heard round the world

08/26/19
  • Trump “repatriation” tweet catches market off guard
  • Fed walks middle path on interest rates
  • This week: GDP, more retail earnings

The yield curve inverted again (a couple of times, actually) and the market bounced back, the Fed failed to commit to an extended rate-cutting cycle and stocks weathered the news, but a presidential Twitter storm on Friday proved to be one bump in the road too many for a stock market trying to avoid a fourth down week in a row.

Despite news early Friday that China was slapping new tariffs on US goods,1 and comments from Fed Chairman Jerome Powell that didn’t promise unlimited rate cuts, a little more than an hour into the trading session the S&P 500 (SPX) had rallied back into positive territory for the day and was poised to break a three-week losing streak.

S&P 500 (SPX), 7/23/19–8/16/19. S&P 500 (SPX) price chart. Freaky Friday.

Source: Power E*TRADE


But after tweeting the question, “My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?” President Trump followed up with another that “ordered” US companies to look for alternatives to China.2 And just like that, the SPX flipped into the red for the day—which ultimately turned out to be its third worst of the year (-2.6%)—and surrendered its gains for the week.

The Dow Jones Industrial Average (DJIA) tanked more than 400 points in the first 10 minutes after the tweet, and extended that loss to more than 745 points before closing down 623. Late in the day the yield curve inverted for a third consecutive day.

On the upside, earnings from top US retailers came in strong, and history shows the SPX has a track record of bouncing back from four-week losing streaks.

Here’s the index scorecard:

US stock index performance table for week ending 8/23/19. S&P 500 (SPX), Nasdaq 100 (NDX), Russell 2000 (RUT), Dow Jones Industrial Average (DJIA).

Source: Power E*TRADE


Sector roundup: The strongest S&P 500 sectors last week were utilities (+0.2%), consumer discretionary (+0.1%), and real estate (-0.3%). The weakest sectors were materials (-3%), energy (-2.01%), and health care (2%).

Power moves: Target (TGT) jumped 20% to $103 on Wednesday—the highlight of retail’s banner week. Fastly (FSLY) jumped +17% to $24.53 on Thursday, part of a +52% week that pushed shares back above their mid-May IPO level. On the downside, Retrophin (RTRX) fell -22% to $13.56 on Thursday.

Futures action: Friday’s turmoil reinvigorated December gold (GCZ9), which closed at a new contract high around $1,537/ounce. The same day, a -2.7% downturn dropped October WTI crude oil (CLV9) to $53.90, its lowest close in two weeks.

Coming this week

Thursday’s GDP release—the first revision of the Q2 number, which came in at 2.1% last month—is the headliner on this week’s economic lineup:

Monday: Durable Goods Orders, Chicago Fed National Activity Index

Tuesday: Germany GDP, S&P Corelogic Case-Shiller HPI, FHFA House Price Index, Consumer Confidence, Richmond Fed Manufacturing Index

Wednesday: Survey of Business Uncertainty

Thursday: GDP, International Trade in Goods, Corporate Profits, Retail Inventories, Wholesale Inventories, Pending Home Sales Index

Friday: Personal Income and Outlays, Chicago PMI

Retail again dominates the earnings calendar:

●Monday: Altaba (AABA), Designer Brands (DBI)

●Tuesday: American Woodmark (AMWD), Autodesk (ADSK), Hewlett Packard Enterprise (HPE), JM Smucker (SJM), HEICO (HEI), Momo (MOMO)

●Wednesday: Lululemon Athletica (LULU), Ollie's Bargain Outlet (OLLI), Five Below (FIVE), Shoe Carnival (SCVL), Tiffany & (TIF), Guess? (GES), Williams-Sonoma (WSM)

●Thursday: Abercrombie & Fitch (ANF), Big Lots (BIG), Burlington Stores (BURL), Ulta Beauty (ULTA), Designer Brands (DBI), Best Buy (BBY), Dollar General (DG), Tech Data (TECD), Dell Technologies (DELL), Dollar Tree (DLTR)

●Friday: Campbell Soup (CPB), JinkoSolar (JKS)

Go to the E*TRADE market calendar (logon required) for an up-to-date earnings schedule and a complete list of splits, dividends, IPOs, and economic reports. The Active Trader Commentary also lists earnings announcements, IPOs and economic report times each morning.

On Friday, the CME Group’s Fed Watch tool still had the odds of a September rate cut pegged around 90%.

Lost in the shuffle. While Jerome Powell’s speech Friday at the Jackson Hole Economic Symposium was quickly overwhelmed by the subsequent Twitter storm, the Fed Chairman’s comments appeared to take a middle path—avoiding rate-cut specifics, but pledging to “act as appropriate” to support the economy.

Although Powell described the US economy as being in a “favorable place,” he also pointed out that there were “no recent precedents to guide any policy response to the current situation”3—i.e., the US-China trade war.

It may not have been the “we’ll-cut-rates-to-zero-and-then-some” message many bulls had hoped for, but the speech hardly threw water on the idea that the Fed is likely to cut rates at its September meeting. As of Friday, in fact, the CME Group’s Fed Watch tool still had the odds of a 0.25% rate cut pegged around 90%.

 

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1 CNN.com. China retaliates with tariffs on $75 billion of US goods. 8/23/19.

2 Wall Street Journal. Trump Orders U.S. Businesses to Find Alternative to China. 8/23/19.

3 Reuters. Powell stops short of committing to rate cuts, and Trump fumes. 8/23/19.

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