 The Market Sum | Insight after the bell
By Caleb Silver, Editor in Chief Friday's Headlines 1. Markets Dive on Trump's Mexico Tariff Threats Markets Closed
Year-to-Date
 Credit: Reuters / Toby Melville
Markets Dive on Trump's Mexico Tariff Threats The last day of May was yet another bad day for markets, capping off a truly dismal month for investors. Much of May's steep slide in the stock market can be attributed to growing fears of trade wars, especially between the U.S. and China, and substantially slowing economic growth on a global basis.
These worries were exacerbated late on Thursday after President Trump introduced a new twist into the situation by threatening to impose tariffs on all U.S. imports from Mexico. Trump tweeted, "On June 10th, the United States will impose a 5% Tariff on all goods coming into our Country from Mexico, until such time as illegal migrants coming through Mexico, and into our Country, STOP. The Tariff will gradually increase until the Illegal Immigration problem is remedied ..."  Stocks plunged in the pre-market on Friday and throughout the trading day, as investors feared that Trump's increasing use of trade as a political tool could help prompt the next economic recession in the U.S. Typically, tariffs are used by protectionist governments in their efforts to shield domestic industries from foreign competition, as our Word of the Day today explains. But its use as a tool to pressure Mexico into stemming the flow of illegal immigration has unnerved investors.
Though this is (maybe) just another false alarm that will soon dissipate, markets are becoming increasingly jittery about news concerning global trade and how it may affect the U.S. and global economy. Bond Yield Inversion Intensifies Speaking of recession, the inversion between long-term (10-year) and short-term (3-month) bond yields in the last few days has become the widest that it's been since 2007, around the time of the financial crisis. We've talked about this at length before. When long-term bond yields fall below short-term yields, it's what we call a yield curve inversion. Many forecasters say it is a precursor to a recession. A more common yield curve inversion is when the 10-year and 2-year U.S. Treasury yields invert. But the last few instances, including the most recent one, involve the 10-year and 3-month yields.
Aside from talks about inverted yield curves, the benchmark 10-year Treasury yield itself just continues to plunge. From its highs around 3.25% back in November of last year, the 10-year yield is now down to around 2.13% as of Friday. That's around a whopping 34% dive in only around six months.
Here's a chart of the recent yield inversion:  Bets on a Fed Rate Cut Surge Closely tied to falling bond yields is the Federal Reserve's process of setting short-term interest rates. With markets in some turmoil now over intensifying trade and economic worries, investors are betting more heavily that the Fed will step up and cut interest rates by the end of the year. We checked the CME's FedWatch tool (shown below) to see how options traders are handicapping the likelihood of an interest rate hike or cut in the next several FOMC meetings. It's pretty clear that markets now see the likelihood of a rate cut by December at north of 90%. This is a dramatic rise in expectations for a rate cut from even just a few weeks ago.
Here's the FedWatch chart for the coming December:  Uber Loses $1 Billion in Q1 Uber reported quarterly earnings on Thursday for the first time after its IPO three weeks ago. To the average investor, one number was just downright scary. The company reported a net loss of $1.01 billion in Q1. That's a billion dollar loss in a single quarter. But here's the catch - Wall Street analysts were expecting a loss around that magnitude. Also, Uber reported total revenue of $3.10 billion, which was on the high end of its prior estimates. So, despite the seemingly huge loss, Uber looks to be in pretty good shape to analysts.
On Friday, the stock actually gapped up sharply on the open as investors piled in after Thursday's earnings results. But it then pared most of those initial gains by Friday's market close.
U.S. Jobs Report Next Week After May's market calamity, what's up next for the new week and month ahead? Markets will likely have to contend further with Trump's Mexico tariff situation. Also, don't forget that the U.S.-China trade conflict is still very much ongoing. And fears of recession and plunging bond yields will almost certainly extend into next week and beyond.
As for major economic releases, a bright spot could potentially be the highly-anticipated U.S. jobs report next Friday. Economists are expecting 180,000 jobs to have been added to the U.S. economy in May. For the last two months, we saw big numbers and substantial upside surprises for the jobs report. If it continues next week, worries about recession may be allayed, at least for the time being. Also on tap are key manufacturing and non-manufacturing (services) reports for the U.S. economy on Monday and Wednesday, respectively.
If you're looking for some kind of market turnaround in the week ahead, chances are good that it'll come from positive economic data. We're hoping for the best. Have a great weekend!
chart courtesy www.koyfin.com  Cooper Companies stock rose today, as the company reported Q2 earnings and revenues topping estimates. Dollar Tree also surged today on solid quarterly earnings. It doesn't seem to hurt that its rival, Dollar General, also reported strong quarterlies yesterday.  Gap fell almost 10% today on a disappointing earnings report and guidance, out after the end of trading yesterday. Constellation Brands, the maker of Corona and Modelo fell, as investors worried about the company's importing costs as Trump gears up to implement tariffs on Mexican goods.  Word of the Day Yesterday, President Trump tweeted the above, announcing that, starting June 10th, the United States would be imposing a 5% tariff on all goods coming into the United States from Mexico. That tariff will gradually increase as Trump says "until the Illegal Immigration Problem is remedied."
We just wanted to remind people that this is an idiosyncratic use of a tariff, and that tariffs are usually implemented as a form of protectionism:
"Protectionism refers to government actions and policies that restrict or restrain international trade, often with the intent of protecting local businesses and jobs from foreign competition.
The merits of protectionism are the subject of fierce debate. Critics argue that over the long term, protectionism often hurts the people it is intended to protect by slowing economic growth and pushing up prices, making free trade a better alternative. Proponents of protectionism argue that the policies provide competitive advantages and create jobs. Protectionist policies can be implemented in four main ways: tariffs, import quotas, product standards and government subsidies."  Credit: Getty / Steve Liss
Today in History May 31st, 1977 - A 33-year-old unknown named Peter Lynch begins managing the Fidelity Magellan Fund. Absolutely nobody notices or cares outside of Fidelity, and Magellan remains closed to new investors until 1981.
Corporate communications department, Fidelity Investments.
Today, Peter Lynch is considered one of the greatest investors of all time. You can read his Investopedia Greatest Investor profile here.
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Friday, May 31, 2019
Nosedive
Tariffs are Killing Trader Mojo
 Chart Advisor | Focus on the Price
By John Jagerson, CFA, CMT Friday, May 31, 2019 1. Mexico caught in Trump's tariff cross hairs 2. S&P 500 suffers as traders seek safe havens 3. The VIX wasn't as bearish as it could have been Major Moves The Trump administration shocked Wall Street this morning by expanding its tariff threats to the United States' third largest trading partner: Mexico.
In a controversial twist, the Trump administration is not using these tariffs as a threat in a trade dispute, like it is with China. Instead, it is using them as a cudgel to force the Mexican government to take action against migrants that are traveling through Mexico on their way to the United States.
Beginning June 10, the U.S. government will impose escalating tariffs – beginning at 5% – on all goods coming from Mexico. If the Mexican government does not address immigration concerns, those tariffs could rise as high as 25% by October, where they would remain until the administration's demands are met.
These tariffs will impact nearly $350 billion worth of goods coming from Mexico to the United States – everything from auto parts and avocados to medical instruments and Modelo.
Traders are interpreting the news as a threat to economic growth – as new tariffs would raise prices for U.S. consumers, impact corporate growth and put a drag on the U.S. economy – and have responded accordingly.
The U.S. stock market sold off (see below), bond yields cratered around the globe and the price of crude oil tanked.
When traders expect strong global economic growth, they tend to push the price of oil higher because economic growth tends to lead to increased demand for oil. Conversely, when traders expect slow economic growth, they tend to push the price of oil lower.
Today, the price of oil continued to collapse, breaking below $54 per barrel.
Today's bearish move confirms that oil has given up more than half of the gains it made from its recent low of $42.36 per barrel on December 24, 2018, to its recent high of $66.60 per barrel on April 23.
The up-trending support level that served as support for the shoulders of the recent inverse head-and-shoulders pattern could potentially hold as support again, but we haven't seen any slowdown in the pullback yet.  S&P 500 The S&P 500 continued its decline today as traders pulled their money out of stocks and moved it into the safety of bonds and other safe-haven assets. Nobody wants to get caught flat footed if the Trump administration carries through with its threat to impose tariffs on Mexican goods.
However, even though the S&P 500 fell today, it still has a number of potential support levels it must deal with if it is going to fall farther.
The first is at ~2,737. This level first served as resistance in early-February and then as support in early-March.
The next level is at ~2,784. This level served as resistance in mid-January before serving as support in early-February.
The last is at ~2,628. This level served as support from late-October 2018 through early-December 2018 and then again in late-January.
Watch for potential support bounces at these levels during the coming weeks. 
Risk Indicators - VIX On a tumultuous day like today, you would expect to see the CBOE Volatility Index (VIX) shooting higher as traders try to process the geo-political uncertainty that was injected into the market by the Trump administration's new Mexican tariff threats.
Surprisingly, the VIX didn't freak out. It actually closed lower than it opened after failing to break above 20 – a level the indicator broke above for five consecutive days in early-May when President Trump announced Chinese tariffs were going to increase from 10% to 25%.
Perhaps this is a signal that Wall Street doesn't believe the initial 5% tariff is actually going to be imposed on goods from Mexico. After all, we have seen myriad twists and turns in negotiations with the Trump administration in the past.
Traders hate to push stock prices lower unless they absolutely have to. With 10 days left until the imposed deadline, it appears Wall Street has some hope the tariffs will never materialize.
I'm going to be watching that level at 20 next week. If it can hold, the stock market has a much better chance of rebounding.  Bottom Line - Things Could Be Worse While today's market reaction to the Trump administration's tariff threats was certainly bearish, it could have been a lot worse.
The S&P 500 didn't give up too much ground and the VIX didn't break through resistance. These are promising signs.
Let's see how negotiations between the United States and Mexico play out during the next week. We will likely see support show up in the stock market if negotiations go well. How can we improve the new Chart Advisor? Tell us at chartadvisor@investopedia.com
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