In May, the story remained much the same as the markets refused to break out of its trading range, where the highs were at the end of January and the lows from February and April. However, the S&P did post a nice gain of 2.16% for the month as it climbed slightly above the midpoint of the range. The tech-heavy Nasdaq index posted an impressive gain of 5.32% as the tech giants once again did most of the heavy lifting last month. (1)
Very Impressive Jobs Report
Last Friday, the U.S. Department of Labor released their employment report which showed that employment is arguably as strong as any time in the history of this country. Initial unemployment claims dropped to the lowest level since 1969 and the total unemployment rate is at an 18-year low at 3.8%. Average hourly earnings also increased at an annualized rate of 2.7%. This tremendously positive news has lifted the markets since the report was released and is another very positive economic indicator. (2)
Trade War Threat (Still) Continues
The seemingly never-ending trade war continues to give Wall Street jitters as each new headline is released and is more dramatic than any daytime soap opera. On May 19 Treasury Secretary Steven Mnuchin told the media that the U.S.-China trade war was “on hold” and both nations agreed to refrain from imposing new import tariffs. China also announced plans to lower taxes on imported cars and trucks from 25% to 15%, which was very positive. Then, just ten days later, the U.S. unexpectedly elected to proceed with the 25% tariffs ($50 billion of Chinese imports) that were announced in April. Predictably, the Chinese government responded by threatening to issue tariffs. (3)
Next, the Trump administration announced on May 31st that they would move forward with steel and aluminum tariffs against Mexico, Canada, and the European Union. Mexico and the E.U. quickly announced retaliatory taxes for U.S. imports. (3)
The technology giants such as Amazon, Apple, Microsoft, and Facebook continue to support current market levels, allowing the Nasdaq to rise higher relative to the broader markets. Technology is one of two market sectors with the largest capitalization and the greatest impact on the overall performance of the market, with the financial sector (banks and other financial institutions) being approximately equal in size to technology. The financials have held back the S&P 500 from advancing appreciably these last few months. If the financial sector can begin to gain a foothold, we may finally see an upward trend continue. On the other hand, if the financials continue to tread water, it is likely that this up and down market will continue through this next month.
The largest issue at hand continues to be the potential escalation of a trade war. Given the complexity and global economic implications both for the short and long term, the impact and scope of any new developments on this issue will not fully be known until well after the agreements are made. For now, there are many positive economic indicators which continue to show a strong fundamentally economy; and until new data reveals otherwise, the overall “bullish” sentiment of the market will likely continue.
1 - barchart.com/stocks/indices?viewName=performance [5/31/18]
2 - money.cnn.com/2018/05/30/news/economy/trump-china-us-tariffs-trade-timeline/index.html [5/30/18]
3 - https://www.cnbc.com/2018/06/01/nonfarm-payrolls-may-2018.html
This post has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Bob Lawson is not engaged in rendering legal or accounting services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.