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Market Brief – Friday 5/17/19

Investors found out last night that despite Mnuchin’s claims to be arranging another meeting with China, China reported there were no plans to schedule a meeting nor is there a reason to hold another meeting at this time. After buying stocks for more than a year on the hopes of a trade deal, U.S. investors are now stuck holding stocks without any bullish news to coax other buyers in.

Even as the trade deal dies, investors eagerly bought U.S. stocks and drove Treasury yields up a bit as markets opened. Helping boost stock prices was the preliminary University of Michigan sentiment survey which showed a big jump in current conditions. When consumers are optimistic in the short term, the stock market translates increased confidence to mean increased consumer spending.

While consumers remain optimistic, when it comes to paying their automobile loans, they seem less enthusiastic. The percentage of delinquent automobile loans hit 4.69%, which sounds small until it is compared against the 5.7% peak set back in 2010. Even though the economy is not in a recession, the automobile lending sector is in dire shape.

Midwest farmers are about to be hit with more rain as they rush to get their corn crops planted. The major news media broke a story yesterday stating that a mere 30% of the annual corn crop has been planted. Normally at this time, about 66% of the corn crop has been planted based on the five-year average.

With more rain coming, farmers will not be able to plant and they risk further damage to the seeds they just planted. Not to mention, for each day after May 15th that seeds are planted, yields tend to fall 2%. Adding to the misery, crop insurance deadlines have either passed or are soon to pass, which means farmers may not qualify for crop insurance on some of their fields.

It is worth noting that much of this information was previously known, but it never made the headline national news. When the “Smart Money” wants to buy low, they will often suppress news until they have purchased all the shares they want of a stock or commodity. Once the “Smart Money” has bought all the shares they want, the news suddenly shifts in the opposite direction, which is why agricultural commodity prices are suddenly rising.

Stocks rallied most of the day until word of the trade talks stalling hit the major news wires. The broad equity indices closed lower and after spending a major of its day over 2.4%, ten-year Treasury yields closed just under 2.4%. Watch 2.35% on ten-year Treasury yields as the last major level of support. A break of 2.35% should send yields back to their pre-election levels.

Physical gold failed to find buyers to break through $1,300/oz and fell today along with physical silver. Keep an eye on where silver is headed, as it is a leading indicator for the mining and emerging markets sectors. Silver miners briefly traded below their two-year lows but slightly recovered. Should silver miners continue to fall, they will likely hit their 2015-16 lows and bring the gold miners with them. This will be a huge opportunity.

Oil and gas producers have been fighting to get out of a support zone but continue to be rejected, which means oil and gas producing stocks should revisit their December 2018 lows and bring the broad stock market with them. Hang on to this theme, as it will present a tremendous opportunity in the future.