Major Indices Year-to-Date

• S&P 500: +9.8%
• Dow Jones Industrial Average: +6.4%
• NASDAQ Composite: +12.3%
• Russell 2000: +8.3%

The runaway gains of 2019 have pulled back substantially; while it’s still impressive, it’s not the sensational results from the first four months of the year. I ran into a viewer at the mall. He told me in retrospect that he would have closed several positions, including Apple (AAPL) on May 1^st if he knew the pullback would be this sharp and sudden.

He’s now resigned to not selling, no matter how much more pressure there could be. I know individual investors often believe missed tops are ordained to be retested. While that’s been true for the overall stock market for a couple of centuries, it’s not always the case with individual stocks.

The main reason I’m bringing this up is that many investors are at the point where they aren’t going to sell now, knowing just how much more they could have gotten for their shares a month ago. Knowing the pullback has very little to do with actual economic data or changes in investing propositions.

That said, there is a lot of guessing going on about the potential impact of tariffs on Chinese and Mexican goods. To be clear, they are disruptive. Although the media and financial experts suggest the entire cost will be absorbed by American consumers, there will be pain felt all around.

Speaking of which, I don’t believe tariffs will be implemented on Mexican exports into the United States, but it’s an unknown that must be factored into the decision-making. Nonetheless, the economic models that assume any business could pass on 25% price increases onto anything are nuts, but that camp is getting all the media time. The “logical” conclusion of their thinking is that this whole thing will be inflationary.

On the contrary, it would mean an economic slowdown.

This has many experts wondering when the Federal Reserve comes into play. Remember that the sell-off last month began with Wall Street’s disappointment with Jerome Powell, who pushed back on the persistent deflation as nothing more than a short-lived situation. I didn’t believe that then, and I certainly don’t believe it now. 

The bottom line is confusion reigns, and that always means selling pressure.

Speaking of selling, consumers have been focused on non-durable goods. Perhaps it’s because of pricing, but it also can mean things like Peak Auto have finally arrived. This should be woven into everyone’s investment models.

On that note, steel prices have been coming down fast and could make a difference for durable-goods margins in the second half of the year. A big part of the steel initiative move was hype around tariffs, as existing contracts locked in most prices. This year has seen a rapid decline in prices for most steel products.

Some Nibbling

Friday’s session was intriguing as two sectors finished higher, even as major indices closed at the low points of the session. Utilities were due for a move higher, and Real Estate is about the next generation of communication – I think everyone must have exposure.

S&P 500 Index		-1.14%
Communication Services (XLC)		-1.44%
Consumer Discretionary (XLY)		-1.25%
Consumer Staples (XLP)		-1.31%
Energy (XLE)		-1.59%
Financials (XLF)		-1.36%
Health Care (XLV)		-0.52%
Industrials (XLI)		-1.22%
Materials (XLB)		-0.96%
Real Estate (XLRE)	+1.27%
Technology (XLK)		-1.37%
Utilities (XLU)	+0.72%

Portfolio Approach

I’m getting really close to getting very aggressive about buying in this market. 

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

Today’s Session

The markets look to be continuing the losing streak this morning; however, futures are well off the lows.  This morning, technology is getting hit as talk of the U.S. Justice Department planning another antitrust case against Alphabet (GOOG/GOOGL) search practices, as well as other businesses, is taking big tech down.  There is nothing concrete yet, and it could be months before we get specific charges, if any charges, nonetheless, Alphabet is down over 3% in the pre-market. 

Both sides of the aisles seem to have technology on their radar.  In February, the Federal Trade Commission (FTC) launched a task force to investigate potential antitrust in tech companies as competitors' complaints build.  So for now, tech will be a target. 

Economic Calendar

This week, economic data will have a chance to usurp headlines and speculation.  The biggest release happens on Friday with the jobs report, but each day investors will get a chance to assess the macroeconomic backdrop.

We will also hear from several Fed members, and I suspect we’ll hear more about potential rate cuts.

Monday

•  PMI Manufacturing Index
•  Construction Spending
•  ISM Manufacturing Index

Tuesday

•  Motor Vehicle Sales
•  Factory Orders

Wednesday

•  MBA Mortgage Applications
•  ADP Employment Report
•  PMI Services Index
•  ISM Non-Manufacturing Index
•  EIA Petroleum Status Report
•  Beige Book

Thursday             

•  International Trade
•  Jobless Claims
•  Productivity and Costs 

Friday

•   Employment Situation
•   Wholesale Trade
•   Baker-Hughes Rig Count
•   Consumer Credit

 

Comments

I % think President Trump should immediately impose 25% tax/transfer fee on all remittances to foreign countries. Not only have no taxes been paid on this cash when received by the sender, this is money earned in communities but will never be spent to grow businesses in the same community. This is tax evasion. This is illegal money laundering. Some of this money is going to pay the human smugglers who brought these people to the US. Stop the flow of untaxed $$$$$$$$ back to these countries and you will stop the flow of ILLEGAL immigration coming here to earn that cash. keith kundahl on 6/3/2019 9:33:00 AM

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