Tariff teeter-totter continues
04/09/18

Punch and counterpunch. That’s been the story of the US-China tariff standoff—and the stock market.

After bouncing off the mat following last Monday’s tariff-triggered -3.3% decline in the S&P 500 (SPX), US stocks succumbed on Friday to the one-two combination of a new tariff threat and a weak jobs report, dropping more than 2.8% intraday and closing out the week in the red. However, some buying at the tail end of Friday’s session pared the S&P’s loss to around 2.2% on the day.

S&P 500 (SPX) 2/2/18 – 4/6/18. S&P 500 daily price chart. Tariff-bound trading.

Source: OptionsHouse


Friday’s sell-off—after the White House warned of new potential duties on $100 billion worth of Chinese goods—was just the latest instance of an up-and-down market driven by worries of a costly trade war. Traders had to keep shifting their weight from one foot to the other as market perceptions appeared to flip back and forth from “this is a negotiating tactic” to “this may be something that will be difficult to stop.” The daily chart above shows the SPX consolidating near its recent lows.

Any chance the market had of shrugging off the tariff story and closing higher last week was likely snuffed out by Friday’s surprise employment report miss—only 103,000 new jobs vs. an estimated 175,000.

Nonetheless, the major US indexes managed (barely, in the case of the Dow) to remain above their February correction bottoms despite trading to their lowest levels since February 9. Here are the final numbers:

Index Comparison. US stock index comparison, week ending March 29, 2018

Source: OptionsHouse


All S&P 500 sectors except two lost ground for the week, with the market maintaining a defensive posture. The top performers: Energy (+0.04%), Telecom Services (unch), and Utilities (-0.1%). The worst performers: Information Technology (-2%), Industrials (-1.9%), and Health Care (-1.6%).

Despite another negative week for tech, some of the high-profile names that have taken a beating recently bounced back last week—none more dramatically than Tesla (TSLA), which after dropping $110 from its February 27 high, rallied nearly $55 (22%) off Monday’s low of $244.59 to close out the week near $300.

In the futures space, a couple of markets China has singled out for retaliatory tariffs, soybeans (S) and hogs (LH), took big hits last week, although both (especially soybeans) rebounded off their lows. Meat producer Tyson Foods (TSN) also tumbled on Monday’s pork-tariff threat, but it, too, made up some its losses over the next couple of days.

Looking ahead, in addition to a slew of Treasury auctions this week, traders will be watching the latest inflation data, along with the release of the minutes from the Federal Reserve’s March 20-21 FOMC meeting:

Monday: T-bill auctions

Tuesday: Producer Price Index (PPI), Wholesale Trade

Wednesday: Consumer Price Index (CPI), Atlanta Fed Business Inflation Expectations, 10-year T-note auction, FOMC Minutes

Thursday: Chain Store Sales, Import and Export Prices

Friday: JOLTS

The week starts slowly in terms of earnings, but it marks the beginning of the Q1 reporting season, highlighted by a group of financial stocks on Friday:

Tuesday: MSC Industrial (MSM), Argan (AGX), Healthcare Services Group (HCSG)

Wednesday: Delta Air Lines (DAL), Fastenal (FAST), Bed Bath & Beyond (BBBY), WageWorks (WAGE)

Thursday: Apogee Enterprises (APOG), Bank of the Ozarks (OZRK), BlackRock (BLK), Commerce Bancshares (CBSH), Rite Aid (RAD)

Friday: Citigroup (C), First Horizon (FHN), First Republic Bank (FRC), JPMorgan Chase (JPM), PNC (PNC), Wells Fargo (WFC)

You can find a complete list of earnings, splits, dividends, IPOs, and other market events on the E*TRADE market calendar (logon required).

One new development in the tariff story was the President’s acknowledgement on Thursday that investors may be in for “a little pain” because of it, but that the long-term benefits would be worth it.1 One the other hand, on Friday White House National Economic Council head Larry Kudlow said that serious negotiations between the US and China hadn’t yet begun2—what some observers may interpret (again) as a possible sign that there is still room for a trade agreement before threatened tariffs become realities.

 

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1 The New York Times. Trump to Investors — There Will Be ‘a Little Pain’: DealBook Briefing. 4/6/18.

2 Bloomberg. U.S.-China Trade Talks ‘Have Not Really Begun,’ Kudlow Says. 4/6/18.