Note: Our daily “S&P 500 Outlook, Forecast, and Trading plan for Tuesday, 05/07” will be posted around 8:30am EDT, Tuesday.
THE GIST (“THE WHAT”)
Trade tensions came back to the fore, sending the S&P 500 index tumbling at the open. In a sign of resilience, the index staged a strong rebound in the afternoon session bouncing off of session lows at 2898.21, erasing most of the day’s steep losses and closing the session off of day’s lows at 2932.47, down 13.17 points and losing 0.45% over previous session’s close. Except Health Care, all the other ten primary sectors closed lower with Materials sector leading the declines.
THE DETAILS (The “How & Why”):
President Trump escalated trade tensions with China. His weekend tweet that he could raise tariffs on $200 billion worth of Chinese goods from 10% to 25% as early as this Friday spooked markets. He also threatened to slap another 25% tariffs on $325 billion worth of goods that have not been subject to tariffs yet. Panicked investors sold-off trade-sensitive stocks in favor of safe-haven Treasury bonds, sending yields lower across the board. The 10-year Treasury yield settled at it 3-week low of 2.48%.
The broad index, however, rebounded from steep losses following reports that the Chinese delegation would come to the U.S. as originally planned, easing some of the tensions that several analyst viewed as a bargaining tactic.
Materials, Industrials and Technology stocks were the worst hit in today’s panic selling, albeit gaining ground by the end of the session, closing lower by 1.38%, 0.96% and 0.82%, respectively. Wynn Resorts Ltd., Deere & Co., Microchip Technology Inc. and DowDuPont Inc. were the worst hit, declining 4.07%, 4.03%, 3.74% and 3.64%. Caterpillar Inc., Boeing Co. and Apple Inc. also fell 1.65%, 1.29% and 1.54%, respectively.
Financials, Utilities and Consumer Discretionary were the other notable decliners of the session, down 0.67%, 0.64% and 0.64%, respectively. Affiliated Managers Group, Inc. was the worst decliner of the session, tumbling 11.60% after the investment management company missed first quarter revenue and earnings estimates.
Health Care was the only sector to sport modest gains of 0.58%, receiving a boost from a 6.56% jump in Centene Corp. following reports that hedge funds Corvex Management LP and Sachem Head Capital Management LP have built stakes in health insurer and are looking to challenge its $17.3 billion acquisition plan of WellCare Health Plans Inc. Cigna Corp. was the other major gainer within the sector, rising 3.91%.
With earnings season now at its tail-end, investors will be closely monitoring the U.S. – China trade negotiations this week. After the closing bell, S&P 500 index futures took a sharp leg lower, falling to 2909 after the U.S. Trade Representative Robert Lighthizer escalated tensions by confirming that the Trump administration could likely announce an increase in tariffs from 10% to 25% on $200 billion worth of Chinese goods.