U.S. markets opened lower and traded in negative territory throughout Friday’s session following renewed trade concerns with China.
The White House announced a 25% tariff on $50 billion of goods from China and said it will pursue additional tariffs if China engages in retaliatory measures.
In response, China intends to impose tariffs on certain U.S. goods starting the first week of July.
The major indexes finished well off their lows with volatility remaining subdued despite the ongoing tariff tantrums.
The Dow fell 0.3% after testing a morning low of 24,894 while closing above major support at 25,000 for the 8th-straight session. The Nasdaq dipped 0.2% following an intraday pullback to 7,704 while easily holding the 7,700 level into the closing bell.
For the week, the Dow was down 0.9% while the Nasdaq surged 1.3%.
The S&P 500 slipped 0.3% after trading to a low of 2,761 but did see positive territory by a quarter-point late in the day.
The Russell 2000 was off less than a point, or 0.05%, following the morning fade to 1,672.
The S&P 500 was lower by a half-point while the Russell 2000 was up 0.6% for the week.
Consumer Staples were up 1.3% while Utilities added 0.7% and showed the most sector strength. Energy tumbled 2.2% to lead sector laggards with Materials falling 0.7%
Consumer Discretionary was up 2% for the week and Utilities jumped 1.8%. Energy was down 3.6% with the Financial sector dropping 2.2% for the week.
Global Economy – European markets finished in the red a day amid the renewed U.S.-China trade clash. However, most of the major indexes retained weekly gains after having their best day in a month the previous session.
UK’s FTSE 100 sank 1.7% and the Stoxx 600 Europe gave back 1%. The Belgium20 and Germany’s DAX 30 were down 0.7% while France’s CAC 40 fell 0.5%.
The Russian central bank today left its key policy rate hike unchanged at 7.25% for the second straight meeting.
This was a bit more hawkish than market expectations for roughly a 50% chance for a 25 basis-point rate hike.
Asian markets closed out the week mixed after the BOJ left its policy unchanged.
Australia’s S&P/ASX 200 was rallied 1.3% and Japan’s Nikkei was up 0.5%.
South Korea’s Kospi was lower by 0.8% and China’s Shanghai declined 0.7%. Hong Kong’s Hang Seng gave back 0.4% while
The Bank of Japan left its policy unchanged, maintaining its 80 trillion per year QE program and its 10-year JGB yield target of zero, in-line with market expectations.
BOJ Governor Kuroda reiterated his pledge for the BOJ to continue its QE program until inflation reaches the BOJ’s 2% inflation target.
The BOJ downgraded its inflation assessment and now sees the CPI in the range of 0.5%-1%. Japan’s CPI ex-fresh food in April eased to only 0.7% year-over-year.
The Empire State manufacturing index rose 4.9 points to 25 in June, topping expectations for an 18.8 reading.
Industrial Production slipped 0.1%, missing forecasts for a rise of 0.2% last month.
The preliminary Consumer Sentiment reading for June rose 1.3 points to 99.3, which was better than the 98.5 forecast.
Baker-Hughes reported the U.S. rig count was down 3 rigs from last week to 1,059, with oil rigs up 1 to 863, gas rigs down 4 to 194 and miscellaneous rigs unchanged at 2.
NY Fed’s Nowcast forecasts a 2.98% growth rate for Q2 GDP, slightly below the 3.08% clip forecast. The negative surprises from industrial production outweighed the positive inputs from PPI, retail sales, and the Empire manufacturing index.
The model is predicting a 2.8% pace for Q3.
Market Sentiment – Dallas Fed Robert Kaplan stated trade is an opportunity, not a threat for the United States.
He went in to add he would not knowingly advocate for raising rates so much that the yield curve inverts, saying that the curve is a very critical factor that he others at the Fed look at when deciding policy.
Kaplan said he also believes that the size of the debt is a key policy consideration as well. He continues to sound a bit cautious on the policy front, especially in the midst of a trade war.
The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 2nd-straight open after reaching a peak of $121.09. Resistance is at $120.50-$121 held into the close with additional hurdles at $121.25-$121.50 and the 200-day moving average.
Short-term support is at $120-$119.50 with a move below $119 and the 50-day moving average being a slightly bearish development.
RSI is trying to clear prior early April resistance at 60 with continued closes above this level leading towards another run at 70 and the late May high. Support is at 55-50.
Market Analysis – The Spider S&P 500 ETF (SPY) is forming a rounding topping process following Friday’s pullback to $275.35. Near-term support at $275-$274.50 held with a move below the latter signaling additional weakness.
Resistance from March at $277.50-$278 held throughout last week.
Continued closes above the latter would being a bullish development for a possible push towards $280-$282.50 and mid-January hurdles.
RSI Is holding current support at 60 with risk to 55-50 on a move below this level.
Near-term resistance at 65-70. Continued closes above the latter would be a bullish signal.
The Dow Jones Transportation Average ($TRAN) tested a low of 10,915 intraday with near-term support at 11,000-10,900 holding. A close below these levels would be a slightly bearish development.
We mentioned late last month the latter served as prior resistance throughout mid-May with continued closes above these levels being a bullish signal.
This is still the case and we mentioned it would also provide a good signal to how the Dow would preform in the coming weeks. A move above 11,100 would confirm renewed strength.
RSI is in a slight uptrend with near-term resistance at 65. A close above this level would be a bullish signal. Support is at 60-55.
The percentage of S&P 500 stocks trading above the 50-day moving average closed Friday at 68.25% with the low tapping 63.88%.
Current support is at 65%-62.50% with a move below the latter signaling upcoming weakness.
December and early January resistance is in the 75%-80% area with the former getting stretched twice last week.
The percentage of Nasdaq 100 stocks trading above the 200-day moving average closed at 65.04% with Friday’s peak reaching 66.99%.
Current resistance is at 67.50%-70% with continued closes above the latter getting February and March highs north of 75% in play.
Support is at 65%-62.50% with a move below 60% being a bearish development.
Existing Position Update
TSLA bull put spread expired worthless.
TSLA bear call spread was exercised since both strikes were in the money. We still get to keep the premium that we took in when opening the position.
AMZN moved further into our neutral target zone.
PYPL is no longer aggressively trending higher. Expect weakening of momentum in the near term…prior to expiration.
All the best,
Roger Scott