 The Market Sum | Insight after the bell
By Caleb Silver, Editor in Chief Thursday's Headlines 1. U.S. Markets end Mixed on Choppy Day 2. June Swoon? 3. Global Perspective 4. Chart of the Day: Oil ETF Slides Markets Closed
 Credit: Reuters / Andres Stapff
U.S. Markets Close Higher on Choppy Day A choppy day for U.S. markets ended with all three of the major indexes slightly higher with one more day to go in May.
It is highly likely we will experience our first substantial pullback for stocks in 2019 once this month closes. To be sure, U.S. markets have rallied 25% from their 2018 year-end lows, so a 6% pullback, like the one we are experiencing, is not unusual or terribly frightening. If markets fall another 4-5%, we will be in correction territory, and then we can pull out the heartburn medicine.
Pullbacks and corrections are a normal part of market cycles. We need to expect them and build our portfolios so they can withstand the drawdowns while being prepared for the upswings. That's what we've been teaching at Investopedia for the last 20 years. That's why we are here.
Read more: Portfolio Management Basics
Still, there is no denying that investor sentiment has clearly shifted this month. The derailing of the trade talks between the U.S. and China have a lot to do with that shift, but, as we have noted, there are other factors at play. Factors like slowing economic growth, declining corporate earnings, uncertainty in Europe, a shifting Federal Reserve and an economic expansion that is ten years old and tiring.
We are seeing that manifest in market activity and among individual stocks. Only 5 of the Dow components are higher in May, and none of them are what we would consider to be industrial stocks.
Dow Leaders in May:
chart courtesy www.koyfin.com  The Biggest Dow Losers The Dow's biggest losers are the likely suspects - all of which are down more than 11% and have heavy exposure to the U.S.-China trade war:
What Will June Bring? The summer wind will come blowin' in, as Frank Sinatra famously crooned, but given market history, June is not such a favorable month for markets. Ryan Detrick, the Sr. Market Strategist at LPL Financial, brings up these historical stats for reference:
We are kind of in both camps right now. We had a blistering start to the year, and a 5-6% fade in May. But this is what history looks like, on a chart.  Investors may be Bracing for the Worst The May swoon has brought out the bearishness in many investors. The Chicago Board of Options Exchange daily put to call ratio surged to its highest level in six months yesterday. The put to call ratio measures the amount of bearish to bullish bets for stock futures. The more pessimistic traders are, the more they will bet on future declines.
In addition, the American Association of Individual Investors (AAII) Investor Sentiment Survey has more than 40% bears, the most all year. You can smell the bearishness like a campsite in Alberta.
courtesy AAII.com  This is not necessarily a bad thing. We need to see more signs like this to know that a bottom may be forming. We are not predicting that one is, at this point - we never do - but traditionally, when investors are at their most bearish and fearful, markets swing the other way. It happens on the flip side as we well know.
Global Perspective If we look around the world, global markets are holding up pretty well, even in countries where you would least expect it given political turmoil. Equity markets in Greece, Brazil, India, Argentina and Australia are all relatively strong. We've been writing about the threat of a potential recession these past days as forecasters have been beating that drum harder... but the strength of global markets belies that notion, at least for now. The U.S. has its own challenges, but healthy trading partners around the world make those a little easier to overcome, provided that they remain trading partners.
(Mea culpa... I incorrectly stated yesterday that a recession is generally considered to be 2 consecutive months of negative growth. It's two quarters of negative growth, and one of our astute readers corrected me on that.)
Here's a look at the biggest ETFs that track those countries markets, courtesy of Koyfin.  We are in unpredictable times, to say the least. But, as investors, we need to make sure we have a plan that is in line with our goals, our risk appetite and that can stand pullbacks. That may sound obvious, but it's one of the hardest things to do, especially in noisy times like these.
chart courtesy www.koyfin.com  Keysight Technologies jumped today on record fiscal quarterly earnings results, beating expectations and announcing a share repurchase program of $500 million. Dollar General also popped today on quarterly earnings topping estimates. Total Systems Services and Global Payments both saw shares rise today, as they edge closer to a deal.  Phillips-Van Heusen continued to fall today, a hangover from poor earnings reported yesterday. Kraft Heinz also continues to fall on analysts' downgrades.  Word of the Day Trump's tariffs on Chinese imports have been understood as a negotiating tactic, up to this point. But a year after Trump's first tariff on $34billion worth of Chinese imports, businesses are starting to adjust to a trade war that doesn't look to be ending soon. Companies have been looking to past the cost of tariffs on to consumers, and shifting their supply chains out of China. So, it might be a good day to brush up on your supply chain basics:
"A supply chain is a network between a company and its suppliers to produce and distribute a specific product to the final buyer. This network includes different activities, people, entities, information, and resources. The supply chain also represents the steps it takes to get the product or service from its original state to the customer.  Credit: Reuters / Shannon Stapleton
Today in History May 30th, 1969 - Sesame Street makes its debut. That makes today the children's shows 50th anniversary. Michelle Obama was on the show today to join in the celebration.
Not exactly noteworthy on the timeline of financial events, but a lot of us learned to count and read with The Count and The Cookie Monster. If you're interested in celebrating but aren't sure how to, maybe check out these stamps the U.S. Postal Service will be selling starting June 19th. Chart of the Day: Extended Crude Oil Plunge Weighs Heavily on Energy Stocks  Crude oil futures fell around 4% on Thursday as U.S. crude oil inventories for last week remained higher than expected once again, and fears that escalating trade conflicts will threaten the global economy and demand for oil continued. This prolonged drop in oil prices that has been in place for more than a month has weighed heavily on oil and gas companies involved in the exploration and production of oil, including such companies as Hess (HES) and Pioneer Natural Resources (PXD).
On Thursday, the Energy Information Administration (EIA) reported that U.S. crude oil inventories fell by only around 300,000 barrels against previous estimates of a 900,000-barrel decline. And for the two prior weeks, the EIA reported large gains in stockpiles against expectations of declines. With supply consistently higher than expected for three straight weeks, crude oil prices have been under pressure of late.
Contributing to this pressure have been worries that an extensive trade war between the U.S. and China would weigh on global economic growth and demand for oil, especially in these two countries, the world's largest oil consumers.
As shown on the chart, U.S. West Texas Intermediate (WTI) crude oil futures have fallen around 14% since the late-April highs. But for the companies that have exploration and production operations, as represented by the S&P Oil & Gas Exploration & Production ETF (XOP), the collective fall in stock prices has been decidedly worse, more than -20% in around five weeks' time. For an ETF, even in the volatile energy sector, a drop of this magnitude in such a short period of time is uncommon.
Where do crude oil and energy stocks go from here? Clearly, the previous uptrend recovery has been either severely interrupted or even reversed. With any continued pressure due to trade war fears and high crude inventories, oil futures and oil stock prices may have significantly more room for downside.
How can we improve the Market Sum? Tell us at marketsum@investopedia.com
Enjoy the Market Sum? Share it with a friend. Or share the link below to invite friends to sign up.
CONNECT WITH INVESTOPEDIA
Email sent to: mondemand.forex@blogger.com To update your newsletter preferences or unsubscribe, click here.
114 West 41st St, floor 8 New York NY 10036 © 2019, Investopedia, LLC. All Rights Reserved | Privacy Policy |
Thursday, May 30, 2019
Pullbacks
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment