- NASDAQ Composite +0.49% Dow +0.39% S&P 500 +0.27% Russell 2000 +0.46%
- NASDAQ Advancers: 1643 / Decliners: 367
- Today's Volume (vs. yesterday) -27.00%
- Crude $57.95 +$0.04, Gold $1283.20 -$2.20, VIX 16.05 -0.87
Market Movers
- Earnings reaction HIBB +22%, VSAT +8%, INTU +7%, FL -16%, ADSK -5%, ROST -2%
- April U.S. Durable Orders -2.1% vs. consensus -2.0%
- March revised down to +1.7% vs +2.6% reported
- April Core Orders (Non-defense, ex-Aircraft) -0.9% vs. -0.4% consensus
Chris’ Commentary
All the major indexes opened higher today following President Trump’s prediction last night that a swift conclusion to the ongoing trade / tariff dispute with China can be reached. “It’s happening, it’s happening fast and I think things probably are going to happen with China fast because I cannot imagine that they can be thrilled with thousands of companies leaving their shores for other places,” said the President. Again, as we wrote the other day, the markets are day-to-day as this broad reaching macro theme plays out.
Currently U.S. equity markets are up about 0.5% across the board, which is slightly lower from this morning’s peak highs. Healthcare, Real Estate, Utilities and Technology are the best performing sectors while Consumer Staples and Energy are the only decliners. Currently 9 of the 11 S&P 500 sectors are trading higher. Crude oil trade slightly higher for the first time since Monday. The dollar moves lower while the yield on the 10-yr which now stands at 2.32%. Yesterday we saw the yield on the 10 year bond settle at 2.3185%, its lowest level since 2017.
U.S. April Durable Orders declined roughly in line with economists’ expectations. The key takeaway from the report is that orders for nondefense capital goods, excluding aircraft, decreased 0.9% while the March report was revised down to show only 0.3% growth, not the 1.3% reported. These orders are a proxy for business spending, so it can be said that business spending decelerated in April after a smaller than previously estimated increase in March, which makes sense. Expect businesses and investors alike to continue to use caution amid declining global economic expansion, U.S. tariff issues, uncertainty over Brexit and potential military escalation in the Middle East.
U.K Prime Minister Theresa May announced she will resign on June 7th amid a failed Brexit promise. The process for electing a new leader will begin next week. "It is and will always remain a matter of deep regret to me that I have not been able to deliver Brexit," May declared, adding that it will be for her "successor to seek a way forward that honors the result of the Brexit referendum." The European Commission responded to the announcement with individual empathy, but also stating that May’s resignation does not change the EU's position on Brexit. Elections to the European Parliament will take place over the weekend across the EU as scheduled.
Fleet Week is in full swing in New York, as a parade of ships from the maritime military services dock in the City. For over 3 decades, the annual event brings more than 2,600 U.S. and Canadian service members to Manhattan through Memorial Day. The event includes ship tours, military demonstrations, musical performances and more. If you see a uniformed serviceman or woman walking by, take a moment and say thank you to those who are willing to make the ultimate sacrifice to keep us safe at home and abroad.
Sector Recap
Brian’s Technical Take
Yesterday we noted that markets were pricing in an 80% probability for a rate cut by December 2019, according to Bloomberg. Just five months earlier on December 19th the Fed last raised the overnight rate despite nearly a full quarter of widespread carnage in the capital markets. At the time it seemed logical to hold off and do nothing given they had already hiked rates 7x since the start of 2017 while simultaneously implementing the balance sheet reduction program (QT).
In hindsight it seems pretty clear the December rate hike was a mistake. The below chart plots the current treasury yield curve (yellow line) and the slope of the curve back on December 14th, 2018 (white line), the Friday before the last rate hike, when the overnight rate was in the 2-2.25% range.
In December nearly the entire curve was positively sloped as you went out in maturity. Today everything between the 1yr and 10yr Treasuries are yielding less than the 1M – 6M bills. And with the overnight rate now at 2.39%, the entire curve aside from the 30-year yield is now trading below Fed Funds. Houston we have a problem.
Yesterday’s risk off session was dominated with headlines about the escalating trade war, but maybe even more noteworthy was the preliminary U.S. manufacturing and services PMI data which missed badly vs. expectations and at levels not seen since 2009. In the manufacturing data, new orders fell to the contractionary 49.7 level. The U.S. economic slowdown appears to have been well underway before the tariff truce was torn up which to state the obvious is likely to make things worse.
Circling back to the Fed, they seemed to be “behind the curve” (excuse the pun) throughout Q4 and early ’19 with their numerous “miscommunications” highlighted by “rates were a long way off from neutral” , “rates could be hiked above neutral”, and “QT is on auto-pilot”.
The global economic slowdown prevalent throughout 2018 now appears to be washing up on our shores. With the elimination of the tariff truce and the slowing economic activity, can we count on the Fed to get it right this time? Is a December rate cut too far off? I guess a lot depends on the upcoming G20 in late June. Either way it should be an interesting summer.
Nasdaq's Market Intelligence Desk (MID) Team includes:
Charles Brown is Associate Vice President on The Market Intelligence Desk with over 20 years of equity capital markets experience. Charlie has extensive knowledge of equity trading on both floor and screen based marketplaces. Charlie assists with the management of The Market Intelligence Desk and works with Nasdaq listed companies providing them with insightful objective trading analysis.
Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.
Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.
Brian Joyce, CMT is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Before joining Nasdaq Brian spent 16 years as an institutional trader executing equity and options orders for both the buy side and sell side. He also provided trading ideas and wrote technical analysis commentary for an institutional research offering. Brian focuses on helping Nasdaq’s Financial, Healthcare and Transportation companies, among others, understand the trading in their stock. Brian is a Chartered Market Technician (CMT).
Michael Sokoll, CFA is Associate Vice President on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
