Market Brief – Monday 5/6/19

On Sunday, President Trump tweeted that due to stalling trade negotiations, which for the past several months he and his administration claimed were close to completion, that the current 10% tariffs will increase to 25% on Friday. He also tweeted that $325 billion Chinese goods remain untaxed, but will “shortly” be tariffed at a rate of 25%.

Investors continue to shrug off any fears of an earnings recession, but the automobile industry is suggesting that rising inventory levels may be a problem. As of April, more than 4.2 million new vehicles remain unsold. This is 500,000 more unsold vehicles than there were in Spring 2007.

Shortly after markets opened, Harker, a member of the FOMC, stated the Fed does not have a lot of policy space to deal with a recession right now. Investors who are long stocks right now should really take this statement to heart.

Even though China blocked President Trump’s tweets, the Chinese stock market took a beating last night. Europe fared better but still closed lower. U.S. equities started the day lower, but investors desperately came in early to buy as the risks of a massive market unwind are building. Investors are hoping that President Trump is bluffing.

Treasury yields fell in overnight trading and 10-year Treasury yields bounced right off support at 2.479% before moving slightly higher. A break below support should trigger another short squeeze. Look for Treasury yields to head lower and bring the broad stock market with them.

Stocks calmed down after reports came out stating that China was still sending a trade delegation, however, the key player is still rumored to be staying home. Over the weekend reports came out stating that China will not agree to any trade deal where they must change their laws, so it still appears a trade deal is a long way off. The only question remains – will President Trump make good on his weekend threat to further raise tariffs?

Treasury yields bounced off resistance twice and found sellers, but yields still remain in a downward trend. Ten-year Treasury yields closed at 2.498% and continue to inch their way towards a larger move lower.

Stocks closed down slightly after fighting back their early losses. American investors continue to buy every dip or drop in stock prices without much regard. Investors have also ignored President Trump’s tweets that he will increase the tariffs on Friday.