 The Market Sum | Insight after the bell
By Caleb Silver, Editor in Chief Thursday's Headlines 1. Markets Rally for Third Day in a Row 3. Ciao, Mario! 4. Mexico ETF See-Saws Markets Closed
 Markets Keep Rallying The enthusiasm has been contagious as U.S. markets made it three days in a row of gains with investors betting on the Fed lowering interest rates in upcoming FOMC meetings. There was also news that the U.S. might postpone tariff hikes on Mexico that are slated to go into effect on Monday.
(James has more on what happened to the Mexican Stock market in our daily chart, below.)
As a reminder, President Trump threatened to impose a 5% tariff on all Mexican imports unless Mexico curbs the flow of "illegal migrants" into the U.S. It's not just a one-time increase, either. Trump tweeted that those tariffs will increase every month, which will somehow force U.S. companies who outsource manufacturing to Mexico, to bring those operations back to the U.S.  Way Beyond Avocados Lest anyone tell you that this will be a problem for America's avocado infatuation, it's way bigger than that. Yes, Chipotle did say the prospect of increased tariffs will cost it an additional $15 million in higher avocado prices, but produce is just one of the many products the U.S. imports from its Southern neighbor. Imports from Mexico totaled more than $670 billion worth of goods in 2018, making it the second largest supplier of goods to the U.S., according to the U.S. Trade Representative.
The U.S. auto industry is very reliant on Mexican manufacturing, as are the appliance and electronics industries. Zoom into to see the industries impacted.  The Highest Highs Despite these distractions, many U.S. stocks are hitting all-time highs. Among them are consumer staples companies and utilities. We wrote yesterday about how utility ETFs are up over 20% in the past year given their lack of exposure to trade wars and the global economy. It should come as no surprise that U.S. companies like American Electric Power and The Southern Company hit record highs today. It's also notable that both Coca-Cola and Pepsi hit record highs as well, even though they do have exposure to China and Mexico, and they rely on aluminum as a cost input (China's number one export is aluminum - fun trade war fact).
Here is a short list of stocks hitting all-time highs today:
XLP, the popular ETF that tracks Consumer Staples (in blue), has outperformed the DJIA by about 5% so far this year.  Regulation Best Interest This may go down in history as one of the worst names for a securities law ever, but it's an important one. Yesterday, the Securities and Exchange Commission voted to approve Regulation B.I., as it is known, which mandates that broker-dealers who recommend products to their clients, only recommend those that are in their clients best interest. They must be transparent about all fees and commissions the brokers earn from recommending those products and clearly explain why those products are suitable for their clients.
You would think that this was the case all along, but boy, would you be wrong. The history of Wall Street and the financial services industry, especially in the U.S., is littered with way too many examples of brokers pushing their clients and customers into the wrong products just so they could earn commissions. There are many honest brokers out there, of course, but this rule wouldn't exist if they were all pure.
The rules are much tighter in Europe where MIFID and now MIFID2, have protected investors from this behavior.
While the Securities & Exchange Act of 1934 had some of these provisions, many bad actors have found ways around them for decades. Regulation B.I. is the new law of the land that is meant to put an end to those practices, even though many critics say it doesn't go far enough.
Read more: What is Regulation Best Interest?  Mario will be Missed Mario Draghi is not a household name in the U.S., but he should be. The President of the European Central Bank has been at the helm of that institution for nearly 8 years. His term expires in October. He has been leading the ECB through some of its most tumultuous days including the Brexit misfires, the Grexit threat, economic slowdowns in Germany, Spain and Italy, and a more emergencies than a firehouse on the fourth of July.
Like his U.S. counterparts, Draghi has led an extremely accommodative central bank, keeping interest rates ultra-low and allowing European banks to borrow generously from the till. That may very well have kept the EuroZone out of a recession, or worse.
Today, Draghi did not lower interest rates for the ECB as many hoped he would do, but he did promise that the bank will be as supportive as necessary to keep the EuroZone economy from sliding into a deflationary spiral and a recession. Sound familiar?
chart courtesy www.koyfin.com  AMD popped nearly 8% as Morgan Stanley upgraded the stock, saying that "being cautious has obviously been the wrong call." International Flavors & Fragrances also rose more than 5%, as the company unveiled its 2021 vision, its strategies for accelerating growth, and reaffirmed its financial targets for 2019-2021.  L Brands fell more than 4.14% today, after falling more than 12% in May. A bunch of retail stocks fell today, too, with Nordstrom, Macy's and Gap all falling between 2% and 3%.  Word of the Day News came out today that the U.S. trade deficit fell in April, right before Trump intensified his rhetoric on the U.S.-China trade war. The trade deficit decreased to $50.8 billion in April from $51.9 billion in March. For the month of April, exports fell $4.6 billion to $206.8 billion and imports fell $5.7 billion to $257.6 billion.
"A trade deficit is an economic measure of international trade in which a country's imports exceed its exports. A trade deficit represents an outflow of domestic currency to foreign markets. It is also referred to as a negative balance of trade (BOT)."  *credit FPG/Getty
Today in History June 6th, 1934 - FDR signs the Securities Exchange Act into law, creating the U.S. Securities & Exchange Commission (SEC) and requiring companies to file registration documents with stock exchanges and to file quarterly financial statements with the SEC. For the first time, financial disclosure is made a fundamental right for investors, and regulation and enforcement of financial rules becomes a Federal responsibility.
Museum of American Financial History (www.moaf.org); Joel Seligman, The Transformation of Wall Street: A History of the Securities and Exchange Commission and Modern Wall Street (Houghton Mifflin, Boston, 1982), pp. 99-100.
*This is in fact a picture of FDR signing the Social Security Act, in the name of transparency. Chart of the Day: Mexico Stocks Attempt Rebound on Possible Tariff Delay  U.S. markets extended their rally on Thursday as hopes for an accommodative Federal Reserve continued, and reports surfaced that the U.S. is considering delaying President Trump's threat of imposing tariffs on all goods from Mexico. Last week, Trump threatened a 5% tariff on all Mexican imports to the U.S., initially set to take effect next Monday. As might have been expected, though, negotiations this week have thus far failed to yield any significant progress, and Mexican negotiators have requested more time. Investors on Thursday were optimistic that either a delay would be granted or a resolution to the politically-charged trade conflict is not far off.
As shown on the chart, the iShares MSCI Mexico ETF (EWW) spiked sharply on reports of the possible tariff delay, but then pulled back sharply almost immediately, paring all of the short-lived gains. From this dramatic spike, one thing is clear - investors in Mexican equities are rightfully jittery about the potentially negative impact of tariffs on major Mexican-based companies.
On a longer-term basis, the EWW ETF is in a clear downtrend. But since November of last year, Mexican stocks have been on a general rebound from very long-term lows. The outcome of the current Trump-Mexico trade conflict will very likely decide EWW's next direction. If the tariff situation is resolved relatively quickly, as might be expected, the ETF is likely to see a relief rally back up towards the 45.00 level, which is right around the current convergence of the 50-day and 200-day moving averages. In the event of any escalation of the conflict, however, EWW could potentially continue its retreat below the key 42.00-area lows.
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Thursday, June 6, 2019
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