THREAT OF MEXICAN TARIFFS PUSHES GLOBAL STOCKS LOWER -- 200-DAY AVERAGES ARE BEING BROKEN -- AUTOS ARE BEING HIT ESPECIALLY HARD -- INCLUDING GENERAL MOTORS -- THERE'S A REASON WHY BANKS AND ENERGY STOCKS ARE FALLING TOGETHER
200-DAY AVERAGES ARE BEING BROKEN... The threat of tariffs on Mexican imports is rattling global markets today. And more technical damage is being done. Chart 1 shows the Dow Industrials falling below their March low near 25,200. That puts the Dow at the lowest level since late January. Chart 2 shows the Nasdaq Composite Index trading below its 200-day line today, and bearing down on its March intra-day low at 7332. Chart 3 shows the S&P 500 also trading below its red line; and closer to its March intra-day low at 2722. Industrial and Financial SPDRs are also trading below their 200-day lines today. Bond yields continue to drop.
10-YEAR TREASURY YIELD NEARS 2017 LOW... The weekly bars in Chart 4 show the 10-Year Treasury yield falling another 6 basis points today to 2.16% which is the lowest level since September 2017. And it appears headed down to that year's low just above 2.00%. Falling bond yields also reflect the continuing flight to the safety of Treasury bonds as stock prices weaken.
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Chart 1
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Chart 2
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Chart 3
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Chart 4
AUTOMOBILE STOCKS ARE GETTING A LOT CHEAPER -- INCLUDING GM... The threat of new tariffs on Mexican imports is hitting stocks tied to autos and auto parts especially hard today. Chart 5 shows the Dow Jones Automobiles Index falling to the lowest level in more than three years. Foreign stocks had been leading the retreat in autos, especially in Japan and Germany. Chart 6, however, shows General Motors (GM) plunging to the lowest level in nearly five months.
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Chart 5
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Chart 6
THERE'S A REASON BANKS AND ENERGY STOCKS ARE DROPPING TOGETHER ... Energy stocks are one of the weakest parts of the market. So are bank stocks. There may be a reason why. The black bars in Chart 7 shows the Energy SPDR (XLE) trading at the lowest level in five months. The green bars show the KBW Bank Index trading below both moving average lines, and nearing a test of its March low. There may be a reason why both groups have been doing worse than the rest of the market over the last month. And that has to do with low inflation and the price of oil. The price of crude oil has fallen nearly -20% since the third week of April. Which is the main reason that energy stocks have been weak. Falling oil prices also weaken the inflation outlook, which is one of the factors pulling bond yields lower. Falling bond yields, in turn, are hurting bank stocks.
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Chart 7
VIX INDEX REMAINS BELOW 20 ... Chart 8 shows the CBOE Volatility (VIX) Index climbing today as stock prices weaken. The VIX, however, remains below the psychologically important resistance level at 20; as well as its May intra-day high near 23. That's mildly encouraging. Because it usually takes a VIX move well above 20 to signal a more serious market decline.
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Chart 8
SECTOR RECAP -- CONSTELLATION BRANDS WEIGHS ON STAPLES ... Nine of eleven sectors are trading lower today, with some of the biggest losses in energy, technology, communications, financials -- and staples. Defensive utilities and REITs are the only two in the black. Healthcare stocks are also seeing smaller losses. A drop of more than -4% in the price of oil is making energy the day's weakest sector. One of today's surprises is that the normally defensive consumer staples are one of day's biggest losers (-1.42%). The biggest reason for today's large loss in the Consumer Staples SPDR (XLP) is a -6% drop in Constellations Brands (STZ) which is the maker of Corona beer and other beverages. The company gets 73% of its imports from Mexico. Chart 9 shows the stock gapping sharply lower on news of impending tariffs on Mexican imports.
GOLD STOCKS JUMP WITH METAL... Safe haven buying of gold is making Newmont Goldcorp (NEM) the biggest percentage gainer in the S&P 500 (see Chart 10). Gold miners as a group gained nearly 4% today.
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Chart 9
