Note: Our daily “S&P 500 Outlook, Forecast, and Trading plan for Monday, 05/20” will be posted around 8:30am EDT, Monday.
THE GIST (“THE WHAT”)
Snapping a 3-day winning streak, the S&P 500 index closed lower, albeit mostly recovering from the early week’s slump on escalating fears of a fully blown trade war between U.S. and China. Opening lower, the index managed to move into positive territory after the Trump administration lifted tariffs on steel and aluminum imports from Mexico and Canada which were levied early this year.
Gains, however, lost steam on registering session high at 2885.48 on reports that trade talks might have stalled after China accused the U.S. of bullying. Taking a sharp leg lower in the last hour of trading, the index closed near session lows at 2859.53, down 16.79 points, losing 0.58% over previous session’s close and logging a second straight weekly decline. Ten out of the eleven primary sectors closed lower, with trade-sensitive Industrials and Technology sector leading the declines.
THE DETAILS (The “How & Why”):
The S&P 500 index fell hard early in the week alongside a brutal sell-off of trade-sensitive stocks across sectors following an escalation in a tit-for-tat tariff spat between U.S. and China. Positive comments from both disputing sides, however, sparked a strong relief rally on hopes that a deal might still be possible as investors perceived the intensifying rhetoric as negotiating tactics. Beaten-down stocks were bought back later in the week to help the broader index to recover from early week’s losses.
The index, however, struggled for direction during Friday’s session as investors digested several trade-related headlines. The White House announced that it has agreed to lift the 25% tariffs on steel and 10% tariffs on aluminum from Mexico and Canada in return of an end to all retaliatory tariffs. The Trump administration also announced that it will delay levying tariffs on all foreign-made cars by six months.
While the index rose during the early session on positive developments around North American Free Trade Agreement, the index was pulled back on reports that the trade talks between U.S. and China might have stalled after China accused the U.S. of bullying.
Separately, oil prices fell amid concerns of tightening supply amid rising geopolitical tensions in the Middle-East, further fueled by U.S. sanctions on Iran. Industrials, Energy and Technology were the worst performers of the session, down 1.10%, 1.05% and 0.82%, respectively.
Deere & Co compounded the losses within the Industrials space, tumbling 7.65% after the farm equipment manufacturer missed earnings estimates and warned of potential impact from the ongoing trade tensions.
Semiconductor stocks also extended losses after the U.S. listed the Chinese telecom giant Huawei Technologies Co as a threat to American interests. Qorvo Inc., Skyworks Solution Inc. and Analog Devices Inc. were among the worst decliners of the session, falling 6.14%, 4.84% and 3.70%, respectively.
On the earnings front, while Applied Materials Inc. jumped 2.50% on beating revenue and earnings expectations, NVIDIA Corp. shed 2.28% despite topping estimates after the chip maker declined to reiterate the full-year forecast.