May 10, 2019

US Trading

• S&P 500 Futures -8 points
• 10-year Treasury 2.455%
• Dollar Index 97.34
• VIX 19.25
• Oil $62.03

International Trading

• Shanghai +3.1%
• Nikkei -.027%
• Hong Kong HSI +0.84%
• South Korea KOSPI +0.29%
• German DAX +1.07%
• UK FTSE +0.36%

And on May 10, the sun still rose, and the birds sang. People got up and went to work, and the children went to school. Global trade continued, and the world went on.

However, instantly the gods of global growth punished the US economy for the tariffs knocking 0.3% off the US GDP which equated to about $60 billion in a $20 trillion US economy. Less than the entire market cap that Alphabet lost in 1 day following its earnings report, or nearly the same $50 billion that was wiped off Apple’s market cap this week.

Makes tons of sense? Of Course, it makes sense, because it is the equity market we are talking about, the home of the irrational and out of control algo’s. The same algo’s that search the internet for keywords but can’t understand the meaning of those words.

Look at the losses this week in the top 25 companies that make up the S&P 500, a total market value loss of $276 billion! That nearly five times the amount the tariffs are estimated to have on the US economy.

(Data from YCharts)

Even better the losses in the top 25 stocks in the S&P 500 are greater than the estimated 0.3% of GDP knocked off the roughly $80 trillion global economy, or $240 billion! Is the market oversold? Yeah, I’d say just a little bit.

Rates

Bond yields are already reflecting the slower global growth, with US 10-year yields at 2.45% which are higher than there where they were on March 28 when they reached a low of 2.34% when everyone thought we were going to get a trade deal and before we knew the US GDP grew at 3.2% in the first place. Yes, fear continues to rip through the bond market as investor run for a flight to safety.  However, that seems to be anything but the case.  Oh wait, it must be China selling our treasuries to buy German Bunds that yield a negative 5 bps, right. Don’t think so.

Dollar

As fears of the US economy heading to a recession due to the tariffs and widening federal deficits as a result of 2018 tax reform the dollar is plunging. Or not, because the dollar index is down less than ten basis points today and continues to point in a higher direction.

Oil

Meanwhile, Oil is plunging on fears of slowing global growth. Oh sorry, it looks like it rising by 50bps, and continue to be flat this week and holding support at $61.50.

Shanghai

Yes, the gods of slowing global growth are punishing the financial markets throughout the world on tariff increases as the Shanghai composite soars over 3% following the news, and is yearning to fill the gap up to around 3,070.

S&P 500 (SPY)

Anyway, enough with the drama! All that matters today is what the S&P 500 does, and more importantly, holds technical support at 2,836. I’d be perfectly fine with an early morning retest of 2836 followed by a rally higher to finish the week above the downtrend.

That’s gonna be it. I’m done.

-Mike

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