The market was drifting lower on Thursday when Bloomberg reported President Trump was eager to launch up to $200 billion in tariffs on Chinese goods next week. It wasn’t news per se since the end of the comment period happens midweek, but there were enough media hysterics to pressure stocks.
The fact of the matter is that President Trump cannot let up the pressure, although the same report suggested the implantation of tariffs could be in smaller tranches.
Meanwhile, all eyes are on the Canadian Trade Minister, who has raised her American profile with numerous camera appearances and feeding the press popsicles to beat the heat. We are just hoping she can deliver a deal in the morning to help everyone beat the trade saga heat, and head into the long weekend with confidence.
U.S. – China Trade Saga
March 1: U.S. announces tariffs on Chinese steel and aluminum. The Dow opened 25,024, closed at 24,608
March 22: U.S. announces 25% tariffs on $50 billion in Chinese goods. The Dow opened at 24,526, closed March 23 at 23,533 – the low point of 2018
There have been several key dates since - most with benign market reactions: April 3: United State Trade Representative (USTR) list Chinese goods begin 60-day comment period April 4: China list 100 U.S. goods worth $50 billion in retaliation May 21: Nations meet to seek resolution May 29: $50 billion on Chinese goods advances June 18: Dow Jones Transportation (DJT) announces 10% tariffs on an additional $200 billion in Chinese goods July 10: USTR list items covering $200 billion Chinese goods August 1: USTR announces tariffs to be 25% from 10% August 3: China threatens tariffs on $60 billion in U.S. goods Note: U.S. tariffs on $50 billion in Chinese goods has gone into effect. |
The bottom line is the market has dealt with the tariff saga much better than anyone would admit. The Dow is up more than 900 points since the first salvo, and 2,400 points higher from the tariff fear low.
It’s clear, however, investors want this to go away to focus on the amazing economic momentum.
Next week, the heavy hitters will begin to ferry back from their summer mansions, and there will be serious pressure for them to perform the remainder of the year.
Yesterday’s Session
It was a tough session for companies that guided lower, especially for companies with stocks that had been on fire. The most glaring example was Dollar Tree (DLTR).
On the other hand, retailers that beat and guided higher did well, especially those with heretofore depressed share prices such as Signet Jewelers (SIG), with its best session in a couple of decades, along with Guess (GES) and Tilly’s (TLYS).
After the close, it was the same scenario as Lululemon (LULU) crushed Wall Street consensus with earnings of $0.71, beating by $.0.22. The company enjoyed comp-store gains of 20%, lifting operating margins to 18.5% from 11.8%.
Conversely, Ulta Salon (ULTA) laid an egg with comp-store sales of 6.5% as well. It would have been great, except the stock was up 22% in the last six months, and 146% in the past five years.
Reactions to retail names are a perfect harbinger of the kind of volatility that we could see during the next round of earnings with high expectation bars and big stock gains to justify. This creates an investment dilemma about shifting into value now or riding the momentum wave until it crashes.
Only the safe haven of Utilities (XLU) was higher, while Materials (XLB) was the biggest loser despite its status as a major source of undervalued stocks.
S&P 500 Index | -0.44% | |
Communication Services (XLC) | -0.62% | |
Consumer Discretionary (XLY) | -0.56% | |
Consumer Staples (XLP) | -0.32% | |
Energy (XLE) | -0.28% | |
Financials (XLF) | -0.80% | |
Health Care (XLV) | -0.08% | |
Industrials (XLI) | -0.70% | |
Materials (XLB) | -1.13% | |
Real Estate (XLRE) | -0.53% | |
Technology (XLK) | -0.30% | |
Utilities (XLU) | +0.04% |
Today’s Session
My morning commute was easier than a Sunday morning drive. That got me an extra hour of sleep. That’s the good news, but it means none of the major traders are around so any assessment of the session will have asterisk.
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