U.S. markets struggled throughout Friday’s session following fresh rhetoric from President Trump to impose a 5% tariff on all Mexican imports starting June 10th.

Additionally, duties of up to 25% could be imposed in the coming months if Mexico doesn’t take action to reduce or eliminate the number of illegal aliens crossing into the country.

The major indexes closed at fresh lows on the last trading day for May with prior support levels from January, February and March now in play. Volatility was once again on the rise but held the psychological 20 level into the closing bell.

The Nasdaq tumbled 1.5% following the late day backtest to 7,448 and close below its 200-day moving average.

Prior and upper support at 7,450-7,400 was tripped but held with risk towards 7,350 and the March low of 7,332 on a move below the latter.

The Dow declined 1.4% after testing a low of 24,809 ahead of the closing bell.

Prior and lower support from early February at 25,000-24,750 held on the close below the former with risk towards 24,500-24,250 on a move below the latter.

The Russell 2000 also plummeted 1.4% while bottoming at 1,461 and extending its losing streak to 4-straight sessions.

Longer-term and upper support from mid-January at 1,465-1,450 was breached but held with a close below the latter getting 1,425-1,410 in play.

The S&P 500 was down for the 3rd time in 4 sessions after sinking 1.3% while tapping a late session low of 2,750 on the close back below the 200-day moving average.

Lower support at 2,775-2,750 was kissed but held with further risk towards 2,725-2,700 and early February levels on continued weakness.

The Dow was down for the 6th-straight week after giving back 3% while the S&P 500 gave back 2.6%. The Russell 2000 dropped 3.3% and the Nasdaq was down 2.4%.

For the month, the small-caps were hit for 8.1%; Tech tanked 7.9%; the blue-chips plummeted 6.7%; and the S&P sank 6.6%.

Real Estate and Utilities were the only sectors that showed strength after rising 0.8% and 0.5%, respectively.

Energy and Technology fell 1.8% and 1.7% to lead sector weakness.

The were no sectors that closed higher for the week.

Consumer Staples (-3.3%) and Utilities (-3.2%) were the worst performing sectors. For May, Real Estate (0.4%) was the only sector that showed strength while Energy (-9.5%) led sector laggards followed by Materials and Technology (-7.1%).

The Q1 earnings season is nearly complete and will wrap up in a few weeks before a week or so of a quite period and the start of 2Q reporting in early July.

Total earnings for the 483 S&P 500 members that have reported results, or roughly 97% of the index’s total membership, are up 0.2% on 4.7% higher revenues with 76.8% beating EPS numbers and 59% topping revenue estimates.

The Retail sector’s Q1 earnings results have been mixed compared to recent periods. Total earnings and revenues for the sector are up 13.2% and 8.1% respectively, with 75.8% beating EPS forecasts and 51.5% besting revenue estimates.

Total earnings for the Tech sector, and results from 96% of companies in the S&P 500 having reported, are down -6.9% from the same period last year on 2.6% higher revenues, with 81.3% topping EPS numbers and 67.2% ahead of revenue estimates.

Total earnings for the Finance sector, with all results in, were up 2.7% on 8.2% higher revenues, with 78.4% besting EPS estimates and 61.9% beating revenue forecasts.

For the small-cap S&P 600 index, Q1 results from 559 index members, or 93.2% of the index’s total membership, have been reported.

Total earnings for these companies are down -17.7% from the same period last year on 3.1% higher revenues, with 54.9% ahead of EPS estimates and 56.4% beating revenue numbers.

Looking at Q1 as a whole for the small-cap index, total Q1 earnings are expected to be down -19.2% from the same period last year on 4.5% higher revenues.

For full-year 2019, total earnings for the S&P 500 index are expected to be up 2.1% on 2.6% higher revenues, and would follow the 23.3% earnings growth on 9.3% higher revenues in 2018.

Double-digit growth is expected to resume in 2020, with earnings expected to be up 10.8%.

For 2019 Q2, total earnings for the S&P 500 index are expected to be down -1.8% on 4.4% higher revenues. Estimates for Q2, as well as full-year 2019, have come down with the current 2.1% growth rate for full-year 2019 down from 9.8% in early October 2018.

<strong>Global Economy- </strong>European markets closed lower as recession fears returned following the latest possible tariff tiffs.

Germany’s DAX 30 fell 1.5%. The Belgium20, the Stoxx 600, France’s CAC 40 and UK’s FTSE 100 all fell 0.8%.

Asian markets settled mixed following disappointing economic news out of China that showed contraction in the country’s manufacturing activity.

Japan’s Nikkei was lower by 1.6% and Hong Kong’s Hang Seng dropped 0.8%. China’s Shanghai dipped 0.2%. South Korea’s Kospi and Australia’s S&amp;P/ASX 200 edged up 0.1%.

China’s manufacturing purchasing managers’ index fell to 49.4 in May from 50.1 in April, missing forecasts of 49.9.

A subindex measuring production dropped to 51.7 from 52.1 in April, while the new orders index fell to 49.8 from 51.4.

The new export subindex, an indicator of external demand for Chinese goods, fell sharply to 46.5 from 49.2 in April.

China’s official non-manufacturing PMI, remained unchanged at 54.3 in May.

Personal Income for April rose 0.5% with spending up 0.3% versus expectations for a rise of 0.3% and 0.2%, respectively. The 0.1% increase in March income was not revised, but spending was bumped up to a 1.1% gain from 0.9%, though February was nudged down to flat from 0.1%.

Wages and salaries were up 0.3% versus 0.4%. Disposable income increased 0.4% from 0.1. The savings rate rose to 6.2% versus 6.1%. The PCE chain price index rose 0.3% from 0.2% while the core rate was up 0.2% from 0.1%.

On a 12-month basis, the headline accelerated to a 1.5% year-over-year clip versus 1.4%. The core rate rose to 1.6% year-over-year from 1.5%.

Chicago PMI nudged up 1.6 points to 54.2 in May, topping forecasts of 53.6, and follows the 52.6 mark in April. The 3-month moving average slipped to 55.2 from 58.7.

Consumer Sentiment for May came in at 100, up from the 97.2 April reading, and below forecasts of 101.5.

The strength was in the expectations index which rose to 93.5 versus April’s 87.4.

The current conditions index slipped to 110.0 from last month’s 112.3 print.

The 12-month inflation gauge climbed to a 2.9% clip from 2.5%, while the 5-year measure rose to 2.6%% from 2.3%.

Baker-Hughes reported the U.S. rig count was up 1 rig from last week to 984, with oil rigs up 3 to 800, gas rigs down 2 to 184, and miscellaneous rigs unchanged at 0.

<strong>Market Sentiment- </strong>Minneapolis Fed Neel Kashkari said he is not quite there yet in terms of the need for policy action.

He said the Fed is in a reasonable spot and thinks the trade spat is more noise and rhetoric than action, but tariffs on Mexico could hurt the U.S., as they are deeply integrated.

He went on to say, the economic fundamentals have been quite strong but added the latest data, though, showed inflation remains low.

Wage growth is starting to tick up, but slowly, and it is not signaling inflation above 2%.

Kashkari sees inflation expectations anchored around 1.7% and has been worried about the yield curve for many months while saying it is signaling investors see slower growth ahead.

The iShares 20+ Year Treasury Bond ETF (TLT) extended its winning streak to 7-straight sessions following the intraday run to $131.90 and another new 52-week peak.

Lower resistance from late June 2016 at $132-$132.50 was challenged but held.

Near-term support is at $130.50-$130 followed by $129.50-$129.

RSI is signaling very overbought levels after clearing mid-December resistance at 80.

The May 2012 peak reached 85. Current support is at 80-75 with risk towards 70, depending on the speed of weakness.

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Market Analysis

The Spiders Dow Jones Industrial Average ETF (DIA) fell for the 3rd time in 4 sessions following the late day fade to $248.22 and session low.

Early February support at $248.50-$248 was breached and failed to hold. A close below the $247.50 level would be an ongoing bearish signal with risk towards the $255.50-$255 area and late January support.

Near-term resistance is at $249-$249.50.

Continued closes above the $250 level would be a slightly bullish signal with more important hurdles at $$252-$252.50 and the 200-day moving average.

RSI is in a downtrend with support at 30 and the May low holding into the closing bell.

A move below this level would signal additional weakness towards 25-20 and late December lows. Resistance is at 35-40.

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The Health Care Select Sector Spider (XLV) was also down for the 3rd time in 4 sessions after testing an intraday low of $86.77. Prior and upper support from mid-May at $87-$86.50 was breached but held.

A move below the latter would signal additional weakness towards $85.50-$84.50 and the mid-April low of $84.65.

Lowered resistance is at $87.50-$88 with more important hurdles at $89.50-$90. A recent death cross has formed with the 50-day moving average falling below the 200-day moving average.

This is typically a bearish signal for lower lows down the road.

RSI is a slight downtrend with support at 40.

A close below this level would signal additional weakness towards 35-30 and mid-April lows. Resistance is at 45-50.

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The percentage of S&amp;P 500 stocks trading above the 200-day moving average closed Friday at 48.31% with the session low tapping 47.12%. Early March and upper support at 50%-47.5% was breached and failed to hold.

A move below the latter would being a bearish development for additional weakness towards the 45%-42.5% area and early February lows. Resistance is at 50%-52.5%. A close above 55% would be a slightly bullish signal for additional strength towards 57.5%-60%.

The percentage of Nasdaq 100 stocks trading above the 50-day moving average settled at 20.38% with the session low reaching 17.47%.

Early January support at 20% held.

A move below this level opens up additional weakness towards the 17.50%-12.5% area and extremely oversold levels.

However, the December 24th low tapped 2.91 so there could still be a capitulation moment that could push single-digits.

Near-term resistance is at 22.5%-25% with a move above the 30% level being more bullish and signaling additional strength towards 35%-37.5%.

All the best,
Roger Scott.