Markets Playing Defense, Investors Accelerate De-Risking Posture Amid Tariff Hike

U.S. equities began the week on defense as investors accelerated their de-risking posture, which last week was just an on-again, off-again maneuver.

On Monday, alone, Major Market Averages doubled their declines from last week in reaction to a retaliatory hike in tariffs by China, an unclear timetable for future trade talks, heightened tensions Iran, and a Hot Mess in the IPO market.

The Dow Jones Industrial Average (^DJI) and S&P 500 (^SPX) each lost -2.4%, more than matching their declines of -2.2% last week. The NASDAQ Composite (^IXIC) followed suit, losing -3.4%, slightly more than its -3% selloff from all of last week.

The (^DJI) at 25325 has declined -5% from its 2019 high of 26656.39 on April 23. On Monday, the Dow posted its lowest close since the February 11 close at 25053.11. It’s likely the (^DJI) is setting up another test of support at the 25000 benchmark this week.

The (^SPX) at 2811.87 has declined -4.5% in six trading days from its ATH of 2945.64 on May 3rd; a marker shared with 2945.83 (excluding the decimal) from April 30. This was the lowest close for the S&P 500 since March 25 when it settled just below the 2800 level at 2798.36.

The (^IXIC) settled at 7647.02, its lowest close since 7637.54 on March 25 (same as the S&P). The Nasdaq has given up -6.3% in six trading days since posting an ATH of 8164.00. Monday was its largest one day decline; -269.92 or -3.4%, in 2019.

More Issues than Trade with China

While resolving the trade dispute with China is and will continue to be the dominant market issue this year, there are other headlines competing for attention and market impact.

The apparent sabotage, or attack, on a couple of Saudi oil tankers near the Strait of Hormuz, as lame as it might have been, is certainly not a good optic for stability in the global oil market. Iran, or one of its nefarious proxies, is likely the culprit here, while clearly feeling increased stress from recently heightened sanctions from the U.S. and its allies.

The aftermath of the debacle from the UBER IPO last Friday is still up for debate. While Uber Technologies Inc (UBER) has declined -17.5% from its IPO price of $45.00 in its first 2 days of trading, it almost pales in comparison to LYFT Inc (LYFT) at $48.11 losing one third of its value since their IPO 6 weeks ago.

The market reception of these two highly anticipated IPOs has certainly called into question the prospects for additional so-called Unicorn IPOs in the pipeline; Slack Inc., and WeWork, just to name a couple.

It’s worth noting that numerous other IPOs in this cycle have been very well received, as both Pinterest (PINS) and Zoom Media (ZM) are trading at least +50% above their IPO pricing. One clear distinction is that Zoom went profitable shortly before its IPO process began, while UBER stated very clearly in its prospectus that it cannot provide any guidance on when, or IF it may become profitable…….Buyer Beware.

The Early Line

While stock index futures are looking for a moderately higher opening 90 minutes before the opening of cash trading, These early indications from the futures markets have been very subject the last 2 weeks. Of course should we get a higher opening, the key indicators to watch will be market breadth, given the adv/decline stats running at a negative 5 to 1 clip yesterday, and whether the (^SPX) can hold the 2800 level on any waves of selling that may hit the market intraday.