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The rally on Tuesday held and that was good news, considering the level of fear and fearmongering on Monday. I actually love the naysayers and the ‘Cassandras’ confusing their own bias against tariffs of the administration as a clarion call to the masses. This is still a very good year for the market, which was overdue for a pullback, although I don’t think it’s a comeuppance.

Year-to-Date Performance

• S&P 500: +13.1%
• Dow Jones Industrial Average: +9.5%
• NASDAQ Composite: +16.6%
• Russell 2000: +14.4%

Although the rally ran out of steam into the close, all major indices, save for Utilities (XLU), managed to rebound.  

S&P 500 Index	+0.80%
Communication Services (XLC)	+0.57%
Consumer Discretionary (XLY)	+1.01%
Consumer Staples (XLP)	+0.48%
Energy (XLE)	+1.22%
Financials (XLF)	+0.79%
Health Care (XLV)	+0.50%
Industrials (XLI)	+1.04%
Materials (XLB)	+0.85%
Real Estate (XLRE)	+0.36%
Technology (XLK)	+1.61%
Utilities (XLU)	-0.67%

Small Business Bounce

The National Federation of Independent Business (NFIB) Small Business Optimism Index for April increased to 103.5 from 101.8 in March, as eight out of ten components of the report climbed higher.  This is the highest level in four months, paced by a strong surge in earnings trends.

Investors Split

Professional

There has been a distinct divergence between professional fund managers and individual investors since President Trump’s tweets on May 5^th , ratcheting up the trade war with China.

According to Bank of America Merrill Lynch Global Fund Manager Survey, professional money managers have made swift changes to compensate for a greater risk from the trade war.

• 37% say trade wars biggest tail risk, up 17 percentage points
• 16% say the China slowdown is the greatest risk, which is down from April

Monetary policy is less of a concern, and suddenly, there’s concern over an equity market bubble. Also appearing on the list is a credit event, which has been a worry for lots of smart investors for some time.

The only USA exposure that’s interesting to these folks that manage close to $700 billion are U.S. Technology (XLK) names.

Overall, only 11% of managers have equity exposure with 34% of that in emerging markets, and 9% in European after being short, coming into 2019.

The biggest headline is the surge in hedging to record highs for this series, climbing to 34%. On the other hand, that could be interpreted as positive, since there wasn’t any massive selling of assets. 

According to the report, that changes with just a little more to the downside:

• S&P 500: 2,775 managers move to more defensive positions (see below)
• S&P 500: 2,305  thought the Federal Reserve would come to the rescue (see below)

Individual Investors

Interestingly, there was a spike in the individual investor sentiment after that May 5^th tweetstorm. In fact, this is the highest level of bullishness for individuals since early October. Yes, that’s the exact moment the market peaked and began to tumble into a full-fledged panic by Christmas Eve.

Perhaps, individuals think the China trade issue will be short-lived, or maybe they sense opportunity and the willingness to risk buying near-term dip.

Portfolio Approach

We added a position in Technology, but it’s not a household name and not levered to China. Also, subscribers should still be sitting on plenty of cash to take action. If you are not a current subscriber to our Hotline service, click here to get started today.

Communication Services	Consumer Discretionary	Consumer Staples
1	4	1
Energy	Financials	Healthcare
1	1	1
Industrial	Materials	Real Estate
2	3	0
Technology	Utilities	Cash
3	0	3

Today’s Session

China economic data plunged in April ahead of the latest round of tariffs from White House.

China Economic Data April 2019	Actual	Estimate	March
Factory Orders	5.4%	6.5%	8.5%
Retail Sales	7.2%	8.6%	8.7%
Fixed Asset Investment	6.1%	6.4%	6.3%

U.S data was mixed from April with a retail sales miss,  but there was a huge manufacturing beat according to the Empire State report.

US Economic Data April 2019	Actual	Estimate	March
Retail Sales	-0.2	0.2	1.7
Retail Sales ex autos	0.1	0.7	1.2
Empire State Manufacturing	17.8	8.0	10.1

March retail sales revised higher to 1.7%, mitigating the decline in the headline number, which came in below consensus. 

Retail & Food Services	m/m	y/y
Headline	-0.2	3.1
Ex autos	0.1	3.3
Ex gasoline	-0.4	3.0
Autos	-1.1	2.2
Furniture	-1.2	1.9
Electronics	-1.3	-4.3
Building materials	-1.9	1.2
Food	0.2	2.0
Health & personal care	-0.2	3.6
Gas stations	1.8	4.9
Clothing	-0.2	0.2
Sporting goods	0.2	-8.5
General	0.2	2.7
Department stores	0.7	-3.0
Misc.	0.0	-1.6
Internet	-0.2	9.0
Food services	0.2	5.7

The Ten-Year Bond yield is plunging, as the flight to safety increases, mostly from weak China data, but also from the weaker than expected U.S. retail sales data.

Ten Year Treasury Yields

Futures are slipping and pointing to a lower open.  

Comments

May be lower than expected but those are still large gains in China. Hmm. Brian Bigelow on 5/15/2019 10:32:52 AM

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