May 6 – May 10 Week in Review
The U.S. equity markets couldn’t climb the proverbial wall of worry last week, falling on U.S.-China trade uncertainty, although a major reversal on Friday helped pare the week’s losses. For the week the S&P 500 lost 2.18%, the Dow Jones Industrial Average lost 2.12%, the Nasdaq Composite lost 3.03%, and the Russell 2000 lost 2.54%.
All 11 S&P 500 sectors finished lower with the trade sensitive information technology, materials, and industrial sectors leading the pullback. The Philadelphia Semiconductor Index lost 5.9%.
The week started off with President Trump rattling global equity markets when he said he was going to increase the tariff rate on $200 billion of Chinese imports to 25% from 10%, effective at the end of the week. Slow trade progress and China reneging on its prior commitments prompted the President to take a hard line stance.
Beijing vowed retaliatory tariffs, but it still sent its chief negotiator, Vice Premier Liu He, to Washington to continue the talks. Investors sought to de-risk from a frothy stock market, although each intraday low was met with some renewed buying interest.
The trade talk tensions also sent U.S. Treasuries higher in a flight for safety and boosted the CBOE Volatility Index (VIX) to 23.38 at its high from last Friday's closing level of 12.87. Both cooled down, however, as equities gained some traction on Friday. The 2 year yield declined eight basis points to 2.24%, and the 10 year yield declined seven basis points to 2.46%. The VIX ended the week at 16.04.
President Trump's tariff hike went into effect Friday, and he said there was no need to rush a trade deal, which sent stocks to their lowest levels of the week. Positive-sounding trade rhetoric, however, from Treasury Secretary Steven Mnuchin and China's Vice Premier about the week's trade discussions helped stocks stage a recovery in the afternoon.
Nothing was set in terms of next steps, but the U.S. is reportedly giving China three to four more weeks to reach a trade deal. President Trump also said the tariffs may or may not be removed depending on the outcome but is prepared to levy 25% tariffs on an additional $325 billion of Chinese imports.
Also on Friday ride sharing giant Uber made its highly anticipated public debut, opening in reverse at $42 per share. That was below its IPO price of $45, which was already at the lower end of the $44 to $50 range that had initially been talked about. In other corporate news Chevron decided not to make a higher offer for Anadarko Petroleum, leaving Occidental Petroleum the winner.
U.S. oil prices ended lower on a weekly basis for a third straight week as the trade talk drama unsettled the market and fueled concerns of weakening global oil demand. The U.S. dollar index closed at 97.32 a small drop from last week’s close.
May 13 – May 17 Economic Calendar