Note: Our daily “S&P 500 Outlook, Forecast, and Trading plan for Monday, 05/13” will be posted around 8:30am EDT, Monday.
THE GIST (“THE WHAT”)
A strong late session rebound helped the S&P 500 to snap a 4-day losing streak. Intense selling resumed in the early session after President Trump raised tariffs on $200 billion worth of Chinese imports from 25% to 10% with Beijing vowing to retaliate. Optimism over a possible trade deal kicked in after Treasury Secretary Steve Mnuchin hinted that the bilateral trade talks were “constructive”.
After falling as much as 1.6%, the index staged a solid rebound, bouncing off the day’s low of 2825.39 and closing in a positive territory for the first time in five days at 2881.40, up 10.68 points and gaining 0.37% over previous session’s close. Ten out of the eleven primary sectors closed modestly higher. The index however registered its worst weekly loss since December, losing 2.18% over the last five sessions.
THE DETAILS (The “How & Why”):
Fears of a full-blown trade war between the world’s two largest economies weighed down heavily on investor sentiment this week. The index pulled back from the all-time highs registered last week and is now 2.46% below record high hit on 1 May, 2019. Investors favored safe-haven assets like bonds over riskier equities amid escalating trade tensions, sending Treasury yields lower.
A weaker-than-expected CPI reading indicated that consumer prices rose 0.3%, below the expected rate of 0.4%. Meanwhile, core inflation rose 0.1% as against the expected 0.2%, reinforcing the Federal Reserve’s decision of leaving the benchmark interest rates unchanged this year. The 10-year Treasury yield edged lower to settle at 2.46%, benefiting interest-sensitive defensive sectors. Utilities, Consumer Staples and Real Estate outperformed the broader index, closing with strong gains of 1.73%, 1.17% and 1.13%, respectively.
Hopes that a full-blown trade war could be averted helped the trade-sensitive stocks to erase their early session losses. Materials sector closed 1.27% higher, receiving a boost from a weakened dollar following a tamed inflation reading. Boeing Co and Caterpillar Inc. erased their early session weakness to close with slight gains of 0.15% and 0.11%, respectively. While Apple Inc. also pared its early losses, it closed 1.39% lower amid concerns of falling revenue from Chinese markets.
Among individual stocks, Symantec Corp. was the worst decliner of the session, plunging by 12.54% in its worst day in a year after the security software company posted a weak quarterly performance and faced analyst downgrades.
Investors will be closely monitoring headlines around U.S. – China trade disputes. Another round of trade negotiations ended Friday with no agreement and the Trump administration has threatened China of steep tariffs on all remaining Chinese imports if no trade deal is reached within three to four weeks. While China has vowed to retaliate with countermeasures, investors remain cautiously optimistic amid positive comments from both counterparts.