The S&P 500 hit an all-time intraday high on the first day of the month but then the index moved steadily lower for the remainder of the month. As the month began economic numbers and corporate earnings were good and most believed Treasury Secretary Mnuchin, who said the China trade deal was in its final lap. A trade deal with China is seen as a boost to economic activity so, when the Chinese unexpectedly sent President Trump a communique over the first weekend of May backing away from the agreement, it was a huge surprise to market participants. The following Monday President Trump slapped tariffs on some Chinese goods, the Chinese retaliated with their own tariffs and the rhetoric has simply increased as the month went on. At the end of the month the S&P 500 had lost 6.6%, the worst May performance for the index in 9 years, but it is still 9.8% higher for the year. Concerns about slowing global growth sent oil prices nearly 17% lower for the month and the yield on the 10-year Treasury Note dropped nearly 15%.
Trade tensions dominated the first full week of May as tariffs were added and more were threatened. The Chinese trade delegation did come to Washington, but left without a deal, sending the S&P 500 lower 4 of 5 days and down 2.2%. Trade war concerns sent the S&P 500 2.4% lower on the first day of the second week, making it the worst start to May in nearly 50 years. The remainder of the week saw the market edge higher, driven by strong earnings reports and a ratcheting back of some of the trade rhetoric. There were a couple of disappointing economic reports from both the U.S. and China during the week and the week ended with the S&P 500 down another .8%. The third full week was dominated by restrictions placed on Chinese telecom giant Huawei, that negatively impacted U.S. tech stocks. An easing of those restrictions helped mitigate the losses, but the S&P 500 still ended the week -1.2%. Oil lost 6.8%, its worst weekly performance in 2019, on concerns trade tensions with China will slow global economic growth. The selling accelerated during this holiday shortened week as concerns about China trade were joined by comments from Robert Mueller that gave fuel to the impeachment camp. On the last day of the month President Trump surprised the market by announcing potential tariffs on Mexican imports if they don’t help slow the flow of illegal immigrants. At the end of the week the S&P 500 had lost another 2.6%, the worst week in 2019, and the Dow Industrial Average closed lower for a 6th consecutive week, something not seen in 8 years.
June has historically been an average month for the market with a gain of .7% and a higher close 55% of the time. However, it appears market movement this June is going to be driven by news relating to China trade and political events. The S&P 500 has corrected about 5% which, considering the curve ball thrown by Chinese trade negotiators, seems logical. A trade deal is in the best interest of the world’s two biggest economies and we continue to expect a deal at some point. We believe the announcement of an agreement would drive the market higher but, the longer it takes to come to terms, the worse it will be for both economies, something we think both countries will try to avoid. Another variable is in the political arena, where we still see some willing to do anything to reverse the 2016 election. The policies of the current administration are seen by most market participants as constructive for the economy, so we would expect any movement towards change to have a negative impact on the market.
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