The U.S. stock market is set to decline again this morning, after last week’s pronounced selloff. As we were writing this piece, the markets overseas were down considerably and the S&P 500 Index futures were lower by about 100 points, or more than 2%, in pre-market trading. All eyes will be on President Trump this week, as the world struggles with the Administration’s recently announced tariff agenda. Some nations will be scrambling to meet with the President and reach a solution. Others are expected to push back in some fashion. For now, the President is displaying little flexibility, in contrast with earlier adjustments made to the tariffs program.
In economic news, there are no important reports slated for today and tomorrow. On Wednesday, the FOMC (Federal Open Market Committee) will release the minutes from its latest meeting. Normally this item would be of importance, but it may be overshadowed by more pressing concerns. On Thursday, the CPI (Consumer Price Index) for the month of March will be released. Here, the numbers will likely show that prices rose about 2.5% during the month, year over year. On Friday, the PPI (Producer Price Index) will follow. The Federal Reserve, which has expressed concern that inflation is not yet at its 2.0% target, has been cautious to cut rates further. However, since the President’s tariff announcement, the Fed may have to take action to keep the economy from faltering.
The first-quarter earnings season is set to commence later this week. A few large financial institutions will post results and issue guidance. It is quite likely that CEOs will express concerns about trade uncertainty. It also follows that analysts may struggle to arrive at earnings estimates and stock price targets.
Technically, equities collapsed late last week. Moreover, the selling was relentless with few buyers willing to move in. The S&P 500 Index is now about 17% off its February high, and could easily slip into bear market territory. From a sector perspective, there was nowhere to hide over the past few days, suggesting that investors have turned negative on the entire market. Sectors previously viewed as defensive also succumbed to selling pressure. Meanwhile, the CBOE Volatility Index (VIX), known as Wall Street’s fear gauge, spiked to 45, suggesting that investors are starting to panic. Moreover, the media have turned negative, and many bullish commentators now seem less enthusiastic. We will not attempt to forecast when and where the market will find support. However, eventually the selling will dry up, as the short-term traders and leveraged hedge funds throw in the towel. At that point, dedicated investors will probably go bargain hunting. – Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
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