The Tariff Man Cometh
12/10/18

●Stocks rock—up and down—amid trade-war, yield-curve, and jobs news

●Biggest down week since March

●VIX jumps to a five-week high


 

For a shortened week, there sure was a whole lotta action.

Trade-war drama, worries of a yield-curve inversion, more crude oil volatility, and a somewhat surprising jobs report duked it out last week, whipping the US equity market up and down. Here’s the blow-by-blow:

Monday: The US market rallied in the aftermath of the US-China trade-war “ceasefire” reached over the prior weekend at the Buenos Aires G20 meeting. China agreed to increase imports of US produce, energy, and select industrial goods, while the US agreed to delay its scheduled January 1 tariff increase (from 10% to 25%, on $200 billion of Chinese goods) until at least March 1.1

Tuesday: The S&P 500 (SPX) tumbled more than -3% amid fears of an economic slowdown as portions of the yield curve inverted (i.e., shorter-term interest rates were higher than longer-term rates). Meanwhile, trade optimism got a reality check as President Trump issued a tweet extolling virtues of tariffs and referred to himself as a “Tariff Man”.

S&P 500 (SPX), 10/2/18–12/10/18. S&P 500 (SPX) price chart. A wild ride.

Source: OptionsHouse


Thursday: Trade hopes took another hit with the arrest of China-based Huawei Technologies’ CFO on charges of violating Iran sanctions—a move the Chinese government quickly condemned.2 The SPX dropped 2.9% in early trading but rebounded to close nearly flat on the day. And after holding its ground for much of the week, crude oil slid more than 4% after an OPEC meeting concluded without any mention of a production cut.

Friday: A mixed employment report on Friday was initially followed by a stock rally, presumably on the expectation that lukewarm jobs data would translate into a slower pace of rate hikes by the Fed come the New Year. But the rally soon lost steam and the market ended the day in more than 2% in red. Crude oil erased some of Thursday’s losses with a 2% rally amid expectations a production cut will be announced.3

When the closing bell rang on Friday, the major US indexes had all lost ground on the week, and only the Nasdaq 100 (NDX) remained above water on the year:

US stock index performance table for week ending 12/7/18

Source: OptionsHouse (data)


Sector action: The top-performing S&P 500 sectors were utilities (+1.5%), real estate (+0.4%), and consumer staples (-2.9%). The worst-performing sectors were financials (-7%), industrials (-6.2%), and materials (-5%).

Highlight reel: Some pharma and health care stocks elbowed their way into the spotlight last week. On Monday drug maker Tesaro (TSRO) skyrocketed 58.47% on news it was being scooped up by GlaxoSmithKline (GSK). The same day Global Blood Therapeutics (GBT) shot up 48% after the FDA granted accelerated approval for one of its drugs.4 Agios Pharmaceuticals (AGIO) fell -14% on Tuesday.

Futures watch: After Thursday’s -4% plunge and Friday’s 1.9% rebound, January WTI crude oil futures (CLF9) ended the week pretty much where they started it, around $52.50/barrel.

December gold futures (GCZ8) edged above the upper boundary of their trading range, closing the week around $1,250/ounce.

December 10-year T-note futures (ZNZ8) ended the week at a new contract high of 120.23.

December bitcoin futures (BTCZ8) hit an all-time low of $3,135 on Friday.

The week ahead

Inflation data, retail sales, and business inventory data highlight the US calendar, but Tuesday’s British Parliament vote—yea or nay on Theresa May’s Brexit deal—could make its impact felt across the pond:

Monday: JOLTS             

Tuesday: UK parliament Brexit vote; NFIB Small Business Optimism Index, Producer Price Index (PPI)

Wednesday: Consumer Price Index (CPI), Atlanta Fed Business Inflation Expectations

Thursday: European Union ECB Announcement; Import and Export Prices                               

Friday: Retail Sales, Industrial Production, Business Inventories

A few big names are scattered throughout a slim earnings week:

Monday: Stitch Fix (SFIX)

Tuesday: DSW (DSW), Casey's General (CASY), Dave & Busters (PLAY)                            

Wednesday: Nordson (NDSN), Oxford Industries (OXM), Tailored Brands (TLRD)

Thursday: Adobe Systems (ADBE), Costco (COST), Oracle (ORCL), Ciena (CIEN),

Friday: Not a thing.

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

Don’t forget that VIX: Last week’s extremes tested both the upper and lower boundaries of the range mentioned in “The market speaks.” Also, when the SPX was at its lowest last Thursday, the Cboe Volatility Index (VIX)—the stock market “fear” index—hit its highest level (25.94) since late October. Tomorrow’s commentary will take a look at what the VIX’s moves may be saying about the recent stock-market action.

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1 Economist.com. The US-China trade war is on hold. 12/2/18.

2 Bloomberg.com. ‘Shocking’ Huawei Arrest Threatens to Upend Trump-Xi Trade Truce. 12/5/18.

3 CNBC.com. Oil prices surge more than 4% as OPEC reaches deal to cut output. 12/7/8.

4 MarketWatch.com. Global Blood Therapeutics stock up 40% after FDA agrees to accelerated approval pathway for sickle cell disease drug. 12/3/18.