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After The Close - Stocks were volatile on Friday, even by recent standards, as concerns continued regarding the state of trade relations between the United States and China. Investors were initially unnerved by another round of tariffs slapped on goods from China by the White House. That caused the Dow Jones Industrial Average to fall more than 350 points at one point. But Treasury Secretary Mnuchin’s comments that recent trade talks were “constructive” helped the market recover.

At the close, the Dow was up 114 points; the S&P gained 11 points, and the NASDAQ inched ahead six points.

In economic news, inflation data for April came in tame as the government reported a lower-than-expected figure for the Consumer Price Index. Inflation has remained contained despite a pickup in gasoline prices and a tight labor market.

Federal Reserve Chairman Jerome Powell has suggested that inflation could accelerate modestly in the coming months, presumably owing to underlying strength in the economy. The Fed’s 2.0% target for annual inflation has proven difficult to reach lately, though. The latest, underwhelming inflation data seems to indicate that the Fed’s next move might be to lower interest rates, but such a course of action may still be several months, or more, away.

The chance that interest rates could be lower by yearend or in 2020 is enhanced by the recent disputes regarding international trade and tariffs, which generally are seen as slowing economic growth.

This year’s stock market rally has been fueled in large part by the Federal Reserve’s shift from aggressively raising interest rates to its current neutral stance. Another shift, toward reducing borrowing costs, might well fire up the bulls down the road.

In the meantime, while this week’s trade-induced volatility prompted a bout of profit-taking, it may have been a case of investors looking for a reason to sell. Stocks enjoyed quite a rally since the very end of 2018, and valuations had reached the high end of their range.

In any event, investors will probably have to get used to having trade talks of one sort or another influencing sentiment. Not only are negotiations with China proving drawn out, the Administration may also try to shake up established trade deals with Europe before long.

In other markets, oil prices held steady despite the tariff hikes, as concerns about supplies from Venezuela, Iran, and Libya provided support.

Overall, this was a poor week for stocks, with trade-induced fears taking center stage. - Robert Mitkowski

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

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Before The Bell - Comments from the President that China had broken the deal it had been working on with the United States prompted another steep selloff on Wall Street yesterday morning. On point, after falling back modestly on Monday and Wednesday and dropping sharply in between on Tuesday, the market gave back almost 400 points in the Dow Jones Industrial Average within the first hour of trading yesterday morning. The NASDAQ, not to be outdone, tumbled more than 140 points amid the trade standoff between the two largest economies in the world. 

Things would get worse thereafter, with the Dow tumbling by 400 points as we moved past the 90-minute trading mark, as worries about trade overcame the continuation of positive news on profits. Meanwhile, the technical barometers are breaking down, with the small-cap Russell 2000 now in correction territory, with that composite off by more than 10% from peak to trough. Also breaking to the downside was Intel (INTC Free Intel Stock Report), which shed more than 5% on a brokerage house downgrade. The Dow Industrials would fall beyond the 400-point mark before attempting to pare the deficit some as we neared the two-hour mark of trading.  

Indeed, after the Dow had plunged by some 450 points, which would be the session low, the recovery would gather steam, so that as we passed the noon hour in New York, the deficit would be pared to fewer than 175 points. The rebound in the other indexes would be sharp, as well, and would continue into the better part of the afternoon. Behind this mid-course rebound were remarks by the President to the effect that he sensed a trade deal with China was still possible. Thus, it remained all about this vexing issue as we entered the final third of the session.

What brought the stock market back? As noted, the President intoned that with so many key officials of the government of China now here, progress seemed possible. Indeed, that nation's Vice Premier was to dine last night with the U.S. Trade Representative. That was just hours before the new round of tariffs were set to take effect. As to China, it said that it would retaliate if the mew tariffs are imposed. And on another front, a recession signal was flashed yesterday as the yield on the 10-year Treasury note fell below the return on the 3-month bill. That so-called yield inversion could portend a business pullback.

The market would then wax and wane for the next hour or so, but as we entered the final 60 minutes of trading, fears arose once more, apparently, and stocks sold off anew, with the Dow, which had cut the deficit to fewer than 100 points, falling back to a loss of more than 200 points, before mounting another comeback as the final minutes ticked down. It seems as though Wall Street is edgy regarding to whether there will be a trade deal now that so many of China's officials are in Washington. At the close, the Dow was off by 139 points, having made back two-thirds of its loss. Still, the aggregate tone was quite negative.

The news on trade, meantime, figures to dominate again today. In overnight trading in Asia, meantime, the leading composites were mostly higher. In Europe, the bourses are moving in a positive direction. Also, oil prices, which fell yesterday, are now up so far this morning, while Treasury note yields, which were moderately lower yesterday, are essentially flat in early action today, as traders focus on the trade situation with China and hope for a resolution to this vexing problem in the near future. Meantime, the higher tariffs are kicking in. Finally, the equity futures are suggesting a weaker opening when trading resumes.  - Harvey S. Katz, CFA

At the time of this article’s writing, the author held positions in one or more of the companies mentioned.