Despite growing concerns about possible tariffs against Mexico and chances for additional ones on Chinese goods, stocks had a positive tone early Thursday as Friday’s monthly jobs report loomed.
FIGURE 1: BATTLE TO THE BOTTOM: The FAANGs (candlestick) and semiconductor stocks (purple line) have had a rough month, though both have bounced back about 4% from their late-May lows. Data Source: Philadelphia Stock Exchange, Nasdaq. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.
Debt Clock Ticks: With the world full of uncertainties lately, one of the question marks that people might normally watch has gotten swept under the rug a bit. The U.S. hit its “debt ceiling” back in March, but the government can probably keep operating without raising it until around September, economists say. If there’s wrangling between the White House and Congress on this issue, another government shutdown can’t be ruled out. This is one of those things that might remain in the background as long as bigger fish like Mexico and China tariffs are frying but it’s still there and might not get vacuumed away anytime soon.
Crude Correlation? U.S. crude prices were already at three-month lows even before Wednesday’s weekly U.S. government supply report, and the data put new pressure on the commodity as stocks rose more than expected. Rising crude stocks can sometimes be a worrisome sign for the economy, signaling possible soft demand. While it’s not necessarily the best idea to equate numbers just because they come out the same week, ISM manufacturing data for May and construction spending for April both missed analysts’ consensus expectations. Also, factory orders fell in April and got revised down for March, all of which, along with crude stocks, could play into the story of a possible slowing economy.
As for U.S. crude stocks, they reached the highest level since July 2017, while production stayed at record highs above 12 million barrels a day. It could be interesting to check the weekly oil rig count Friday to see if U.S. producers are scaling back production due in part to the recent price weakness.
SOX Vs. FAANGs: In the battle to the bottom between the semiconductors and FAANGs over the last month, FAANGs were the winner (or loser, depending on how you look at it). The Philadelphia Semiconductor Index (SOX) fell 13% between early May and early June, which sounds bad unless you consider that FAANGs fell 16% over the same time frame. There’s no real secret why both sectors got hit much harder than the overall market (the S&P 500 Index is down 4%). China trade worries drove both sectors down, but the question moving ahead is which one has the better chance for a quick recovery? So far, it’s a tie, with both sectors up just over 4% since their monthly lows posted in late May.
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