U.S. markets opened lower to start Wednesday’s session following slightly disappointing economic news concerning retail sales.
The major averages avoided lower lows and started showing strength an hour afterwards on news that President Trump will delay a decision by up to 6 months to impose tariffs on auto imports at some point this week.
With Friday’s deadline over how to proceed with Trump’s threat to impose a tariff of as much as 25% on imported cars fast approaching, the market took it as a sign that negotiations with Europe and Japan can be extended with a possible resolution.
The Nasdaq soared 1.1% after trading to an intraday high of 7,838. Key resistance at 7,850 and the 50-day moving average held with a close above these levels getting 7,900-7,950 back in play.
The S&P 500 gained 0.6% after testing a 2nd half high of 2,858.
Near-term and lower resistance at 2,850-2,875 was cleared and held with a close above the latter and the 50-day moving average signaling additional strength.
The Dow rose 0.5% following the late day run to 25,724.
Lower resistance at 25,600-25,800 and the 200-day moving average was cleared and held with a more bullish signal coming on a close back above 26,000 and the 50-day moving average.
The Russell 2000 traded in a 21-point range while adding 0.3% and testing an intraday peak of 1,550.
Near-term and lower resistance at 1,550-1,575 held for the 2nd-straight session with a close above the latter and the 50/200-day moving averages being a more bullish development.
Communications Services surged 2.2% and Technology jumped 1.1% to led sector strength.
Consumer Staples was up 0.8% while Real Estate and Consumer Discretionary were higher by 0.7%.
Financials fell 0.4% and Materials were off 0.3%. Utilities were down 0.2% to round out the sector laggards.
Global Economy – European markets settled mostly higher following word of President Trump’s plans to delay the implementation of auto tariffs on European car imports.
Germany’s DAX 30 rallied 0.9% and UK’s FTSE 100 gained 0.8%. France’s CAC 40 rose 0.6% and the Stoxx 600 Europe was higher by 0.5%. The Belgium20 was slipped a point, or 0.04%.
Asian markets finished higher despite weaker-than-expected economic news out of China.
China’s Shanghai surged 1.9% and Australia’s S&P/ASX 200 gained 0.7%. Japan’s Nikkei advanced 0.6% while Hong Kong’s Hang Seng and South Korea’s Kospi added 0.5%
China’s industrial production increased 5.4% year-over-year, versus expectations of a 6.5% increase.
China retail sales in April rose 7.2% from a year earlier, the slowest pace since May 2003, and missing forecasts of 8.6%.
April Retail Sales fell 0.2% overall, with the ex-auto component edging up 0.1%, both weaker than forecasts of 0.3% and 0.7%, respectively. Excluding autos, gas, and building materials, sales were unchanged versus the prior 1.1% gain previously.
Weighing on the headline was a 1.1% drop in vehicle sales after a 3.2% March rebound. Building materials tumbled 1.9%, with electronics sales sliding 1.3%.
Gas station sales rose 1.8% versus 3.3% previously. Clothing sales dipped 0.2%, with non-store retailers sales off 0.2% as well. Food sales nudged up 0.2%, with healthcare declining 0.2%.
Empire State Manufacturing Survey increased 7.7 points to 17.8 in May, better than expectations of 9, after bouncing 6.4 points to 10.1 in April. The employment index fell to 4.7 from 11.9, with the workweek at 4.4 from 4.3.
New orders edged up to 9.7 from 7.5. Prices paid slipped to 26.2 from 27.3, with prices received at 12.4 from 14.
The 6-month outlook index climbed back to 30.6 after falling 17.2 points to 12.4 in April, with improvement in most of the components.
The future employment index declined to 16.3 from 17.3, but new orders climbed to 33.4 from 20.5, with prices paid falling to 33.1 from 37.1. Capital expenditures inched up to 26.2 from 25.2 and technology spending rose to 22.8 from 20.3.
Industrial Production fell 0.5% in April, with capacity dipping to 77.9%, versus forecasts for a flat reading with capacity at 78.8%. This fallows a 0.2% increase in the production index for March and a 78.5% print on capacity utilization.
Manufacturing production slumped 0.5% from unchanged, with motor vehicle and parts production tumbling 2.6% versus -0.2%.
Excluding autos, parts, production was off 0.3% from flat previously. Machinery production also dropped 2.6% from the prior 0.4% gain. Computer, electronics were down 0.5% from 0.1%. Utility production declined 3.5% after climbing 2.2% previously.
Mining was the only positive, rising 1.6% from -0.4%.
NAHB Housing Market Index rose 3 points to 66 in May, better than expectations of 64, and follows the 1 point increase to 63 in April. The single family sales index also increased 3 points to 72 from 69.
The future sales index was up 1 tick to 72 from 71 while the index of prospective buyer index improved to 49 from 47.
Business Inventories were flat in March, with sales climbing 1.6%, as expected. There was no revision to the 0.3% increase in February, though sales were nudged up to a 0.2% gain from the prior 0.1%.
Also as forecast, the inventory sales ratio declined to 1.37 from the 1.39 in the prior three months.
Atlanta Fed’s GDPNow projected real Q2 GDP growth of 1.1% following the release of the aforementioned economic reports, down from the 1.6% pace from last Thursday.
The Atlanta Fed also lowered its forecasts on Q2 growth in real consumption spending and private investment to 3% and -5.7%, respectively, versus 3.2% and -3.2% previously.
Analysts are now estimating Q2 GDP at a 2% growth rate, down from 2.2%, and includes a big $48 billion inventory subtraction.
MBA Mortgage Applications were down -0.6% for the week ending May 10th.
Atlantic Fed Business Inflation Expectations for May was up 2% for the year.
Market Sentiment – Richmond Federal Reserve Bank President Tom Barkin said it makes sense to remain patient on rates, which is the unanimous view of the FOMC.
He does not see a strong case to move rates up given low inflation, nor is there a case to cut rates given healthy growth. He acknowledged the low rate of inflation and the potential that transitory factors may be impacting.
Barkin noted businesses are cautious about funding major expansions, in part amid trade worries and the implications for global growth.
He also expressed concerns about political polarization and the impact on investment and regulation and added businesses are also concerned about the lack of pricing power.
Barkin believes the economy is strong, though business confidence is fragile.
The iShares 20+ Year Treasury Bond ETF (TLT) rebounded to trade to a high of $126.27. Fresh resistance is at $126.50-$127 with the 52-week peak at $126.69.
Rising support is at $125.50-$125 with a close below $124.50 signaling a possible near-term top.
Market Analysis – The Russell 2000 ETF (IWM) was up for the 2nd-straight session despite the morning pullback to $152.07. Near-term and upper support at $152-$151.50 held with a close below the latter leading to a further backtest towards the $150 area.
The rebound to $154.41 intraday pushed current resistance at $154.50-$155 and the 200-day moving average but levels that held into the closing bell.
Continued closes above $155.50 and the 50-day moving average would be a more bullish signal a near-term bottom is in.
RSI is back in a slight uptrend with resistance at 45-50. A move above the latter would be a bullish development for additional strength towards 55-60.
Support is at 40-35 with the latter representing the monthly low.
The Utilities Select Spider (XLU) was down for the 2nd-straight session despite the intraday run to $58.44. Late April and lower resistance at $58.50-$58.75 was challenged but held.
Continued closes back above the latter would confirm a possible push towards $59-$59.50 with the all-time peak from late March at $59.07.
Current support at $58-$57.75 and the 50-day moving average held on the late day fade to $58.09.
A move below the latter would be a slightly bearish signal for additional weakness towards $57.50-$57.25.
RSI is in a slight downtrend with support at 50.
A move back below this level would signal additional weakness towards 45-40 and the latter representing the monthly low. Resistance is at 55-60 with the latter representing the late April high.
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All the best,