Stocks Fall For Second Straight Week As Trade Tensions Rise
The market fell for a second straight week as tensions continued to rise between the U.S. and China. The Dow fell 700 points on Monday, then bounced back Tuesday-Thursday but still ended the week lower. For most of this year the 50 DMA line has served as support but it may now become resistance. The bulls want to see the major indices get- and stay- above that important level. There is an old saying on Wall Street, Sell In May & Go Away. In recent years, that has not been the case, but so far May has not been a kind month to Wall Street. On a bullish note, if the market quickly repairs the damage and gets back above the 50 DMA line then this can easily become another bullish buying opportunity.
Monday-Wednesday’s Action:
Stocks plunged nearly 700 points on Monday after China retaliated and announced $60 billion in new tariffs against the U.S. Starting on June 1, the new tariffs will largely target agricultural products. China said that the U.S. decision jeopardized the interests of both countries and does not meet the “general expectations of the international community.” In response, Treasury Secretary Steven Mnuchin told CNBC the two countries are “still in negotiations.“ Separately, Trump said the U.S. is in a “great position,” in the negotiations, and shed light on the fact that “our economy has been very powerful; theirs has not been.” On Tuesday, stocks rebounded sharply erasing half of Monday’s losses after some of the fear eased regarding the escalating trade rhetoric. President Trump tweeted, “We can make a deal with China tomorrow, before their companies start leaving so as not to lose USA business, but the last time we were close they wanted to renegotiate the deal. No way! We are in a much better position now than any deal we could have made” which helped allay concerns. Separately, rumors spread that the Fed may have to cut rates if conditions worsen and Morgan Stanley told clients that higher U.S. tariffs on Chinese goods will likely turn into a headwind for corporate earnings — and the economy could fall into a recession if the country’s trade war keeps escalating. On Wednesday, stocks opened down 190 points but quickly recovered and closed higher after the US said it will push auto tariffs back by six months. That was viewed as a positive signal and the market closed higher on the day.
Thursday & Friday Action:
On Thursday, stocks jumped over 200 points after shares of Walmart and Cisco Systems jumped on earnings. Walmart rose 1.4% after the retail giant posted first-quarter earnings for fiscal 2020 that beat estimates and said it is in a good position to hit 2019 estimates despite tough comparisons for the second quarter. Meanwhile, Cisco Systems jumped nearly 7% after the stock posted stronger-than-expected earnings raised guidance as well. Stocks fell on Friday after consumer confidence jumped to the highest level in 15 years, the US ended tariffs on Canada and Mexico and rumors spread that the U.S.-China trade talks “stalled.” Elsewhere, shares of Pinterest plunged after the company reported earnings.
Market Outlook: Bullish Tailwind Continues
Stepping back, the market remains very strong after the Federal Reserve reversed its stance and moved back into the easy money camp. Near-term resistance is the recent high while near-term support is March 2019’s low, the 200 DMA line and then 2018’s low. As always, keep your losses small and never argue with the tape.
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