Trade Tensions Grow, Pressuring Markets…..

U.S. equities are solidly lower, adding to last week’s tumble that was the largest of 2019, as trade tensions between U.S. and China have ratcheted higher with China retaliating with tariffs on U.S. goods after Friday’s increased levies on Chinese goods by the U.S. Treasury yields and the U.S. dollar are lower, while gold is higher and crude oil prices have reversed course to trade lower despite heightened geopolitical worries. On the equity front, reports of a lawsuit by more than 40 states against generic drugmakers, including Teva Pharmaceutical is pressuring its shares and stocks within the space, and Dow member Apple is lower amid the trade tensions and as the Supreme Court ruled against the iPhone maker. Europe finished with widespread losses.

At 12:53 p.m. ET, the Dow Jones Industrial Average and the S&P 500 Index are dropping 2.4%, while the NASDAQ Composite is falling 3.2%. WTI crude oil is down $0.66 to $61.00 per barrel, Brent crude oil is trading $0.56 lower at $70.06 per barrel, and wholesale gasoline is losing $0.01 at $1.98 per gallon. The Bloomberg gold spot price is advancing $14.01 to $1,300.06 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is declining 0.1% to 97.29.

Treasury yields fall as economic calendar is quiet and trade concerns fester

Treasuries are rallying, with the yield on the 2-year note falling 7 basis points (bps) to 2.17%, the yield on the 10-year note dropping 6 bps to 2.40%, and the 30-year bond rate decreasing 4 bps to 2.83%. The stock markets are extending last week’s drop, which was the largest of 2019 for the S&P 500, amid escalated trade tensions and uncertainty after the U.S. on Friday increased tariffs on Chinese goods and U.S.-China talks ended without a deal.

The markets are looking to see when the next round of talks will begin, while digesting the retaliatory measures announced by China, which plans to increase tariffs on U.S. goods. U.S. equities have pulled back after stalling around record highs. We believe that a pullback is healthy and could have further to go, but would never suggest an all-or-nothing strategy like “sell in May and go away”. Trade uncertainty jumped back into the headlines and earnings season was mostly better than low expectations, but still only roughly flat in year/year growth. The economy continues to look fairly solid, although there are some cracks under the surface that raise some concerns. It’s not just the United States that suffers from the trade war; however lower correlations among major global asset classes bolster the case for diversification.

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