Summary:
• The stock market fell last week, with the S&P 500 down 16 points to 2712, a decline of 0.6%.
• In an odd disparity, the Russell 2000 performed well, up 20 points to a new all time high of 1626, an increase of 1.2%. How will this affect the tone of the market?
• Based on the market cycles in the SPX chart below, our projection is for a minor decline early in the week and then rise again as a new cycle begins.
On Monday, the S&P 500 rose 2 points, up for the eighth consecutive day, as trade tensions between the US and China appeared to ease. Speculation on this matter began after President Donald Trump tweeted that he would consider easing sanctions on Chinese phone maker ZTE (HK:0763), as they buy “a big percentage of individual parts from US companies.”
On Tuesday, stocks fell 19 points, or 0.7%, after a weak retail sales report. The government reported 0.3% month over month growth for April, which was below analyst estimates of 0.4%. Meanwhile, retail sales for March were revised to 0.8% from 0.6%. In addition, yields on the 10 year treasury note rose to 3.11%, the dollar index rose to as high as 93.34, and gold fell below 1300 to 1289.
On Wednesday, the S&P 500 rose 11 points, while the Russell 2000 (RUT) index gained 16 points, making a new all time high of 1616. Our readers know that we’ve been bearish on stocks in the intermediate term, however, we took note when the Russell made new highs. Will this result in a change in tone for the overall market? Interestingly, the RUT went on to make all time highs on the following two days.
On Thursday, Italian populists were in the news again, after making headway in forming a new government. The leaders of the populist Five Star Movement and anti-immigrant League agreed on Contract for a Government of Change. It appears they may seek to change the nature of Italy’s relationship with the European Union, which led the euro to continue its multi-day tumble. It was a quiet day for stocks in the US, with the S&P 500 falling 2 points.
On Friday, stocks were down 8 points. This occured after senior US officials announced that China had agreed to lift trade barriers that would result in a $200 billion increase in imports from the US. However, China later cast doubt on such an agreement, with a senior official stating that “to (his) knowledge” there was no such deal.
With equities down last week, gold was down 2%, oil was up 1%, the euro was down 1.5%, and 10 year notes were down 0.5%.