It was another 300-point reversal to the downside, as the earnings rally stalled, and the selling snowballed through the closing bell on Monday.

There wasn’t general panic; clearly, the bulls gave up quickly, and buyers remained on the sidelines. On that note, I don’t sense that there are a lot of determined sellers.

S&P 500 Index	-0.82%
Consumer Discretionary (XLY)	-0.39%
Consumer Staples (XLP)	-0.63%
Energy (XLE)	+0.00%
Financials (XLF)	-0.90%
Health Care (XLV)	-1.51%
Industrials (XLI)	-1.33%
Materials (XLB)	-1.28%
Real Estate (XLRE)	-0.39%
Technology (XLK)	-0.65%
Utilities (XLU)	-0.31%

 

 

It’s not exactly ‘death by a thousand cuts,’ but it feels as if it is a form of torture. It was another rally based on really good economic data and corporate earnings that faded into a sell-off by an assortment of slow slicing. The reasons for yesterday’s worry include the dollar, increased steel prices, and the tariff cloud.

Strong Dollar

The spiking dollar is against rival currencies, including five of the six components of the Dollar Index (DXY):

• Krona: +4.15
• Franc: +3.8%
• Yen: +2.8%
• Pound: +2.1%
• Euro: +1.9%
• Canadian Dollar: -0.3%

The thing is, April is the first month since the election that has seen the dollar rise more than 2.0%, and there is a long way to go before this would have a deleterious impact on corporate earnings. Note: because of the nature of currencies, we normally make all comparisons in constant currency.

 

Steel

The Chicago Purchasing Managers’ report saw its prices paid and its component spike to its highest level since May 2011, driven in large part by an increase in steel prices. Other issues include longer delivery times and a chronic shortage of skilled workers.

Tariffs & Trades

The Dallas Fed Manufacturing Report blew away consensus, but a special questionnaire underscores anxiety that’s creeping in for consumers and businesses, offsetting good feelings about the tax reform.

Taxes Reduced

• 25.1%: Significantly
• 33.7%: Slight reduction

Tariff Impact

• Negative: 35.1%
• Positive: 5.1%

I think President Trump understands the elevated anxiety over these tariffs; last night, he extended waivers for Canada, Mexico, and the European Union for 30 days. I suspect a new North American Free Trade Agreement (NAFTA) deal would be done by then, and I hope we can make some tweaks and concessions with our European friends. Heck, President Trump took a shot at President Buhari of Nigeria yesterday.

We have a trade deficit with Nigeria, but I am not sure there will be much change, although there are ways for Nigeria to get closer. 

US Trade with Nigeria	Exports	Imports	Balance
TOTAL 2017	2,155.1	7,050.8	-4,895.8

 

Oil

It should be noted energy was only 16% of the Texas manufacturing industry, which makes this data a greater proxy for manufacturing outside the state.

Speaking of energy, oil spiked as Israeli Prime Minister Benjamin Netanyahu laid out a comprehensive case that Iran is skirting the rules of the nuclear deal. 

Bottom Line

This might seem frustrating, but there has been a lot of trading opportunities, and a lot of great buys that will be realized down the road.

Today’s Session

The market is opening under slight pressure as China ratchets up its saber rattling ahead of a major meeting with U.S. representatives, led by Steven Mnuchin.  The stakes are high, and the moment is now, and the market will be watching.

Meanwhile, earnings have become an after-thought, unless a company misses, then it’s a painful experience.  The selling is like flash mobs even on good news with negative assumptions.  We aren’t going to force the action; although, our potential buy list continues to grow. 

All eyes on Apple after the bell. 

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