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After The Close - The equity market managed to make some progress earlier this morning, weakened in the afternoon, but recovered some ground in the final hour of the session. Earlier today, investors were rattled by reports that some of the nation’s largest technology companies could face increased regulatory scrutiny. Also, many on Wall Street fear that strained trade relations between the U.S. and China will soon hurt the economy. At the close of the session, the Dow Jones Industrial Average was up nominally (ahead five points); the broader S&P 500 Index was off eight points; and the NASDAQ was lower by 120 points.

Market breadth showed advancing issues slightly ahead of decliners on the NYSE, suggesting that there were some pockets of strength today, mainly in the smaller and mid-sized names. From a sector perspective, the basic materials, industrials, and consumer stocks held up relatively well, offset by considerable weakness in the technology area.

There were a few economic reports issued this morning. Of note, the ISM Manufacturing Index registered a reading of 52.1 for the month of May, which fell just short of analyst expectations. Also, construction spending was unchanged in April, where an increase had been anticipated. Tomorrow will be light day, as well, as the latest monthly factory orders report will be the main item out. Meanwhile, looking to the end of the week, on Friday, the government will deliver the May employment report, and that will be a widely watched issuance. 

Elsewhere, in the corporate arena, there was some M&A news to report. Specifically, shares of Cypress Semiconductor (CY) surged in price today, after Germany-based, Infineon offered to buy the company for over $10 billion in cash. Further, shares of El Paso Electric (EE) moved up on acquisition-related news.  

Technically, the stock market declined during the month of May. The S&P 500 Index is now below its 200-day moving average, located at the 2,775 mark. While sentiment seems fairly negative, so far, the selling has been orderly, and we have not seen much panic from investors. Often, more extreme sentiment coincides with a turn in the market direction.  - Adam Rosner

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.

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Before The Bell - The final trading week of May fittingly went to the bears, as the month was a dismal one for those long equities. It was the second-worst May since the 1960s, as the stock market lost more than $4 trillion in value. The primary culprit for much of the 31-day stretch were escalating concerns that the trade war with China, which intensified last month as a new round of tariffs by the Trump Administration and retaliatory measures by China that took effect over this weekend, would have hurt the health of the global economy. The trade worries unnerved investors, which invoked a “flight-to-safety” strategy for much of the month. Investors sought defensive-oriented equities and fixed-income instruments. In fact, the yield on the benchmark 10-year Treasury note, which moves inversely to the price, fell sharply in May.

Speaking of the yield curve, it too had a detrimental impact on trading last week. The yield curve was moving closer to inverting last week. Historically, an inverted yield curve is a sign of a looming recession. That, along with the ongoing trade problems, hurt equities for much of last week. For the five-day stretch, the Dow Jones Industrial Average, the NASDAQ, and the broader S&P 500 Index were down 3.0%, 2.4%, and 2.6%, respectively. Investors are clearly nervous about a slowing global economy and international trade tensions. The CBOE Volatility Index (or VIX), also known as the “fear gauge,” rose sharply last week, including a nearly 10% gain on Friday.

The final session of trading last week was a forgettable one for the U.S. stock market. The Dow 30, the NASDAQ Composite, the S&P 500 Index, and the small-cap Russell 2000 were down 355, 115, 37, and 20 points, respectively, all representing setbacks of around 1.5%. Once again, worries about tariffs were front and center, but this time it included concerns about the impact they will have on the domestic economy. Such sentiment was stoked by a poor performance from the Dow Transports, which, like the aforementioned yield curve, is seen as a barometer for the health of the U.S. economy. Investors are clearly nervous that the trade war will slow U.S. output, which expanded by 3.1% during the first quarter of 2019. The prevailing consensus among economists is that the March-period performance will prove to be the high-water mark in 2019. Against this backdrop, it is not surprising that investors are taking profits after the earlier-year recovery from a dismal fourth-quarter showing for equities.

With several weeks to go before the second-quarter earnings season commences, traders are going to be focused on trade news and the Federal Reserve’s commentary. The latter has provided support for the U.S. stock market this year, but it is being tested by the continued worries about the slowing global economy. We expect the trade war between the United States and China to be a big issue for investors, and likely to result in some continued volatility in the stock market. Both the U.S. and China seem to be unwilling to make concessions in the talks, and the resultant uncertainty, which is never a good thing for investing, is casting a big cloud right now over the U.S. stock market.

With less than an hour to go before the commencement of the new trading week, the equity futures are indicating some more selling in the U.S. stock market. Overseas, the main indexes in Asia finished modestly lower overnight and a similar pattern is being seen in Europe, as trading moves into the second half of the session on the Continent. What will the month of June have in store for traders? If the current trade issues linger and, at the very least there are no signs of compromise between the bickering superpowers, we expect June to be another volatile month for stocks. Stay tuned and fasten the seat belts. – William G. Ferguson

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.