As Trade-War Worries Linger, Market Seems to Lack Buying Conviction

Although Wall Street this morning looked poised to take a break from recent selling, it appears that the market is lacking an impetus to buy in a meaningful way.
6 min read
Photo by iStock

Key Takeaways

  • S&P 500 Index bounces off technical level

  • China halts purchases of American soybeans

  • U.S. government debt market raises concerns

(Thursday Market Open) Although Wall Street this morning looked poised to take a break from recent selling, it appears that the market is lacking an impetus to buy in a meaningful way.

In general, there appears to be a change of mindset going on in the market, fueled by the breakdown of tariff talks with China, the Fed’s unwillingness to cut rates, and an earnings season that saw growth curbed after big gains in 2018.

Yesterday, as risk-off sentiment pressured equities, the S&P 500 Index (SPX) sank below the key psychological level of 2800 for the first time since late March after bouncing off of it earlier this month. 

The benchmark also fell below its 200-day moving average of 2776 but ended up bouncing back by the end of the session. That could be part of this morning’s bounce. Still, it was the first time in more than two months that the SPX had slid below its 200-day moving average, often seen as a key level to watch.

One thing to keep in mind is that stocks tend to retest levels like that, so we’ll have to wait and see whether that happens, and if so, whether that level holds.

The financial news continues to be dominated by U.S.-China trade-related headlines. Bloomberg reported that China has put purchases of American soybeans on hold. And Chinese Vice Foreign Minister Zhang Hanhui accused the United States of “naked economic terrorism, economic homicide, economic bullying.”

Flight to Safety

This week many investors seem to have been rushing to the sidelines and into more conservative investments as they wait out the worsening trade situation. China’s recent threat to use its supply of rare earth elements as a weapon is a worrying escalation. Rare earth elements are used in technology like cell phones, electric cars, and wind turbines, and China produces the great majority of the world’s rare earth supplies.

China’s threat, carried in state media, might indicate a worsening relationship here. Beijing went pretty deep in the bag to throw out something that would hurt. Whether they actually do curb exports is an open question, and it would probably hurt China’s economy. It shows, however, just how negative the situation has become.

Government Debt In Demand

Treasuries remained a big focus Wednesday, with the benchmark 10-year yield finishing Wednesday near 2.26% after falling below 2.25% at times during the day, its lowest level since late 2017. Even more significant, maybe, is the yield curve “inversion” between the 10-year and three-month Treasury notes. The three-month yield was 10 basis points above the 10-year yield, the widest inversion since the last recession. 

Some economists say an inverted yield curve is sometimes the sign of a pending recession, though others say the relationship isn’t necessarily an accurate prediction. What it does show at this point, however, is that investors appear to be seeking shelter in what they see as a conservative part of the market rather than taking chances with more aggressive investments like stocks.

FIGURE 1: 10-YR YIELD EASING.The yield on the 10-year Treasury fell Wednesday as investors sought the relative safety of government debt and sold out of stocks. Data Source: Cboe Global Markets. Chart source: The thinkorswim® platform from TD AmeritradeFor illustrative purposes only. Past performance does not guarantee future results.

Mulling a Potential Rate Cut: Some market participants seem to be seeing a potential silver lining to the worries about global economic growth stemming from trade-related worries. The market’s recent softness has some investors getting more optimistic about a possible rate cut. Chances of a rate cut at the Fed’s June meeting rose to 10% on Wednesday from around 6% earlier this week, according to CME Group futures. Odds that rates will be lower in September than they are now are above 50%, futures prices suggest, and futures also suggest there could be two cuts by next January. Earlier this month, minutes from the Fed’s last meeting indicated that the Fed was going to be “patient” with rates. We’ll have to wait and see if anything changes at the next meeting, scheduled for June 18-19.

Not If, But When: Recessions are part of the economic cycle, and eventually we’ll see another one. Trying to time one, however, is a losing battle, as most economists would probably admit. While some of the latest manufacturing and corporate spending data do look a bit soft, there were also some positive numbers recently (April jobs, for instance) and it’s possible that the economy might end up in relatively decent shape if the trade situation gets resolved. At least one research firm is offering some optimism. “We continue to forecast a slight global economic slowdown in 2019 and 2020, versus 2018, but are not seeing signs of recession,” investment research firm CFRA said in a note Wednesday. 

 About Face: A reversal in optimism about the U.S. and China striking a trade deal isn’t the only thing that’s been behind selling in equities. The government pulled a bullish rabbit out of its hat in April when it estimated Q1 gross domestic product (GDP) growth at an annualized rate of 3.2%, well above the Street’s expectations. (This morning, the government’s second Q1 GDP estimate came in at an annualized rate of 3.1%.) At the time, that, along with strong April jobs and wage growth, helped stocks to new highs. However, since then, the pendulum has swung as negative rates in Europe, an increasing fear that a “no-deal” Brexit might happen, and the festering trade issues between the U.S. and its biggest partners all ganged up on investors. It’s an interconnected world. If rates are negative in Europe and Japan, that’s often going to weigh on yields here in the U.S., and potentially on U.S. stocks. 

Good Trading,



Helpful Educational Content and Programming

  • Check out all of our upcoming webcasts or watch one of the many archived ones, covering a wide range of topics from market commentary to portfolio planning basics to trading strategies for active investors. No matter your experience level, there’s something for everybody.

  • Looking to stay on top of the markets? Check out theTD Ameritrade Network, which is live programming that brings you market news and helps you hone your trading knowledge. And for the day’s hottest happenings, delivered right to your inbox, you can now subscribe to the daily Market Minute newsletter here.

TD Ameritrade Network is brought to you by TD Ameritrade Media Productions Company. TD Ameritrade Media Productions Company and TD Ameritrade, Inc. are separate but affiliated subsidiaries of TD Ameritrade Holding Corporation. TD Ameritrade Media Productions Company is not a financial adviser, registered investment advisor, or broker-dealer.

Economic calendar for week of May 27. Source:

Key Takeaways

  • S&P 500 Index bounces off technical level

  • China halts purchases of American soybeans

  • U.S. government debt market raises concerns

Call Us

TD Ameritrade and all third parties mentioned are separate and unaffiliated companies, and are not responsible for each other’s policies or services.  

Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold.

Market volatility, volume, and system availability may delay account access and trade executions.

Past performance of a security or strategy does not guarantee future results or success.

Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.

Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.

The information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.

This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.

TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2019 TD Ameritrade.

Scroll to Top