Weekly Expert Market Perspectives Park Avenue Securities PAS

Cyclical assets slide on trade uncertainty

The S&P 500 lost 1.2% this week, as trade and growth concerns sent investors fleeing from cyclical assets and seeking shelter in U.S. Treasuries and low-beta stocks.

The blue-chip Dow Jones Industrial Average lost 0.7%, the tech-laden Nasdaq Composite lost 2.3%, and the small-cap Russell 2000 lost 1.4%.

The S&P 500 information technology (-2.8%) and the Philadelphia Semiconductor Index (-6.4%) underperformed on efforts to de-risk amid concerns that China could retaliate against U.S. tech companies. The S&P 500 energy sector lost 3.4%, as oil prices ($58.62/bbl, -$4.11, -6.6%) had their worst week in 2019. Concerns about global growth and end-demand contributed to the weakness in oil.

On the other hand, the defensive-oriented health care (+1.2%), utilities (+1.7%), and real estate (+0.3%) sectors outperformed.

It was a bit of a messy week leading up to these results, although a bit of good news did help tame selling interest.

Summing up the bad:

  • Several companies around the world reportedly began to suspend business or cut ties with China's Huawei Technologies.
  • The U.S. is reportedly considering blacklisting several more Chinese firms after it put restrictions on Huawei last week.
  • Trade rhetoric out of China grew more aggressive and nationalistic, while the U.S. reiterated that Huawei poses national security risks.
  • Preliminary manufacturing data for the eurozone remained weak.

Summing up the good:

  • The U.S. granted Huawei a 90-day reprieve to continue to work with U.S. companies to service existing networks and mobile devices.
  • Both sides appeared committed in striking a trade deal. President Trump said a solution to the Huawei matter could be included in a final deal.
  • The minutes from the Apr. 30-May 1 FOMC meeting indicated that interest rates will remain low.

The takeaway is that the market appeared exhausted from the deluge of trade headlines that could swing from positive to negative on any given day. At the same time, the uncertainty in the outcome, and duration, of a trade dispute fed into concerns about economic growth and corporate earnings prospects.

U.S. Treasuries advanced in a flight for safety, driving yields lower in a curve-flattening trade. The 2-yr yield dropped eight basis points to 2.16%, and the 10-yr yield dropped 14 basis points to 2.32%. The U.S. Dollar Index declined 0.4% to 97.58.

Earnings reports were retail-heavy this week. Home Depot (HD), Target (TGT), TJX Companies (TJX), L Brands (LB), and AutoZone (AZO) advanced following their results. Kohl's (KSS), Lowe's (LOW), Nordstrom (JWN), Urban Outfitters (URBN), Foot Locker (FL), and Best Buy (BBY) all dropped sharply following their results/guidance.

To download the printable version, CLICK HERE.

Past performance is not a guarantee of future results. Indices are unmanaged and one cannot invest directly in an index. Diversification does not guarantee investment returns and does not eliminate the risk of loss.

Data and rates used were indicative of market conditions as of the date shown and compiled by Briefing.com. Opinions, estimates, forecasts, and statements of financial market trends are based on current market conditions and are subject to change without notice. References to specific securities, asset classes and financial markets are for illustrative purposes only and do not constitute a solicitation, offer, or recommendation to purchase or sell a security. S&P 500 Index is a market index generally considered representative of the stock market as a whole. The index focuses on the large-cap segment of the U.S. equities market. Each company’s security affects the index in proportion to its market value. NASDAQ Composite Index is a market value-weighted index that measures all NASDAQ domestic and non-U.S. based common stocks listed on the NASDAQ stock market. Dow Jones Industrial Average is a widely used indicator of the overall condition of the stock market, a price-weighted average of 30 actively traded blue chip stocks, primarily industrials, but also includes financial, leisure and other service-oriented firms. Russell 2000 Index measures the performance of the smallest 2,000 companies in the Russell 3000 Index of the 3,000 largest U.S. companies in terms of market capitalization. MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.

Park Avenue Securities LLC (PAS) is an indirect, wholly-owned subsidiary of The Guardian Life Insurance Company of America (Guardian). PAS is a registered broker/dealer offering competitive investment products, as well as a registered investment advisor offering financial planning and investment advisory services. PAS is a member of FINRA and SIPC.

Provided by Briefing.com

2019-80414 (Exp 09/19)