|Day's Range||1.0400 - 1.0400|
There seems little doubt that if inflation expectations resume a trend lower, then the need for an aggressive response from the Federal Reserve increases and this will have a greater effect on rate cut expectations, bond yields, the USD, equities and gold.
A truce in the trade war between the United States and China that pushed large-cap stocks to new record highs Monday does not appear to be enough to buoy the shares of small U.S. companies that are struggling under the weight of higher tariff costs. Lower margins and less pricing power are preventing small companies from either passing on or weathering the effects of higher trade tariffs to the same degree as large caps, effectively putting a ceiling on their growth prospects, fund managers and analysts say. For the year to date, the benchmark Russell 2000 index of small companies is up nearly 17%, yet remains more than 8% below the record highs it reached in August 2018.
(Bloomberg) -- The S&P 500 is at a record, but areas of the stock market with a reputation for economic prescience are sending warning signals that hearken to the global financial crisis.It’s small caps and transportation stocks, whose performance has deteriorated at a much faster clip than other parts of the market. Relative to the S&P 500, each group is on the brink of hitting its lowest point since 2009. For investors, the decline is another example of the growth debate churning underneath the market’s surface.“There’s still uncertainty as to what direction this market should go. It’s anybody’s guess,” said Jeff Carbone, managing partner at Cornerstone Wealth, which has about $1.3 billion in assets under management. “I just don’t know if we’re out of the woods yet.”Bears say the weakness in shipping and rail companies that rise and fall with the broader economy and small caps that depend on domestic demand for the bulk of their revenue is a warning not to be ignored. The losses in economically-sensitive stocks reinforce the signal from falling bond yields that suggests all is not well with the economy.Data Monday added to concern, when an unexpectedly weak factory output from the Dallas Fed was the third such gauge to miss estimates. While the S&P 500 only slipped 0.2%, the Russell 2000 Index sank 1.3%, while the Dow Jones Transportation Average tumbled 1.5%.For transports, the sell-off added to its worst performance versus the S&P 500 since 2012. Another day like Monday, and the ratio could drop to the lowest in a decade.FedEx Corp., one of the largest components of the transportation average, reports earnings Tuesday and analysts have warned that trouble looms. Lingering effects from the U.S.-China trade war, the slowdown seen in manufacturing data and weakness in Europe could mean the shipping company will cut guidance for the year-ahead, they say.Meanwhile, weakness in the Russell 2000 has taken it to the lowest level versus the S&P 500 since 2016, and it sits precariously close to the lowest level since 2009. Weakness in small caps has preceded broader sell-offs in the past. Most recently, the gauge peaked against the S&P 500 in June of last year, foreshadowing the fourth-quarter rout that almost ended the bull market.“You normally think of small caps as that’s where the dynamic growth of the economy is coming from,” said Peter Jankovskis, co-chief investment officer at Oakbrook Investments. “So to see the overall market doing well while they’re being left behind, it suggests that people are a little bit concerned about growth prospects.”For Morgan Stanley’s Mike Wilson, one of the most bearish equity strategists on Wall Street, a continuation of soft economic data could lay the groundwork for a 10% correction in the third quarter. As the Fed continues to make the case for data-dependency, the stock market will soon catch on, he said. And if the data continues to worsen, that could mean record highs won’t last long.\--With assistance from Vildana Hajric and Rita Nazareth.To contact the reporter on this story: Sarah Ponczek in New York at firstname.lastname@example.orgTo contact the editors responsible for this story: Jeremy Herron at email@example.com, Chris NagiFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- U.S. stocks surged to an all-time high as global central banks signaled a rising willingness to stimulate growth, sending bond yields tumbling to multiyear lows.The S&P 500 jumped 1% at 9:31 a.m. in New York, surpassing its all-time closing high of 2,945.83 set April 30. The Dow Jones Industrial Average rallied 245 points, withing striking distance of its first record since October. Stocks had plunged 6.6% in May as President Donald Trump pressed his trade war with China and the bond market rallied, signaling a potential slowdown in the economy.The Federal Reserve’s dovish turn Wednesday sparked a late-day rally in risk assets, as investors consensus grew that the central bank is ready to cut as soon as July if economic data flags. Overnight, the Bank of Japan and Bank of England both indicated they stand ready to add to stimulus. The reaction in global bond markets was fierce, with German bund yields sliding deeper into negative territory and the rate on two-year and 10-year Treasuries touching multiyear lows.“What’s the alternative with rates in the market this low?” said Donald Selkin, chief market strategist at Newbridge Securities Corp. “What’s the point of keeping up inflation? I’m surprised of the extent of this but that has to be the rationale. It’s not a perception of a better economy or better profits.”The swiftness of the rebound in equities has been remarkable -- the S&P 500 took just 13 sessions to wipe out May’s pain, the fastest bounce back from a 5% sell-off in five years. Measures of relative strength signaled the index was oversold as recently as June 3. Those are now flashing warnings that the buying is about to go too far too quickly.Defensive shares have paced the June rally, with real-estate and consumer-staple producers leading. Through Wednesday, the only other sectors higher since April are utilities and health-care. The groups pay relatively high dividends, making them attractive to investors seeking consistent payouts now that sovereign bond yields have plunged around the world.“You can continue to see the markets overall melt higher due in part to unusual accommodations from the Federal Reserve,” said Chad Morganlander, a money manager at Washington Crossing Advisors. “It’s all been ebbing and flowing based on how quickly the Fed and ECB have done an about-face.”It’s not all rosy for American stocks. Small caps in the Russell 2000 Index remain more than 10% from their all-time highs set last year, while the Dow Jones Transportation Average is more than 9% from its record. Both indexes are full of stocks considered more sensitive to economic cycles than their large-cap peers.To contact the reporters on this story: Vildana Hajric in New York at firstname.lastname@example.org;Sarah Ponczek in New York at email@example.comTo contact the editor responsible for this story: Jeremy Herron at firstname.lastname@example.orgFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
THE TRADER Bad news poured down this past week, yet the market kept on dancing in the rain. There was bad geopolitical news as the U.S. blamed Iran for attacking two tankers carrying petroleum products.
With the exception of a two-month period in January and February, the Russell 2000 index has been declining steadily versus the S&P 500.
Can people please stop talking complete, unmitigated claptrap on the subject of President Donald Trump, Mexican tariffs and the U.S. economy? The panic over the last few days about possible Mexican tariffs is even more ridiculous than the panic we had last month about the China tariffs — and that was bad enough. The S&P 500 is now higher than it was just before Trump shook his little fist at the Mexicans.
The S&P 500 is close to breaching its 200-day moving average. That would trigger a closely watched sell signal, potentially setting off a broader alarm, selling pressure, and further falls.
One of the highest trading-volume days on U.S. stock markets each year falls in late June, when FTSE Russell rebalances its closely followed collection of U.S. equity indexes
As investors try to cope with the ongoing U.S.-China trade war, BofA-Merrill Lynch is telling investors to resist the temptation to invest in small cap stocks. Jill Carey Hall, the firm's small cap expert, warns the widely held perception they're insulated from the effects is ill-conceived — adding fundamentals in the space remain challenged. "Small cap earnings have been coming in in-line with expectations.
STOCK ALERT 3:30 p.m. At 12:01 a.m. ET Friday morning, tariffs on $200 billion of Chinese goods imported to the U.S. rose to 25%, sending stocks down at Friday’s open. A presidential tweet suggesting that negotiators from the world’s two largest economies were in no rush to reach a deal pushed them further into the red.
The Russell 2000 Index fell back into correction territory Thursday as Wall Street waits to see if the U.S. and China can resolve its issues on trade. "Small caps are most sensitive to overall economic growth," said Tom Essaye, founder of Sevens Report Research. Small caps were having the best start to the year since 1987.
Renewed trade fears weigh on stocks, Liu He is still expected in Washington but an end to trade disputes is far from likely.