Market Perspective for May 10, 2019

The broad market rally in 2019 finally ran into some resistance this week. The S&P 500 Index and Dow Jones Industrial Average declined 2.2 and 2.1 percent, respectively.  iShares MSCI Emerging Markets (EEM) slumped 5.0 percent as Chinese shares sold off.

Nevertheless, economic fundamentals remain strong and earnings season continues to impress. We have been expecting a sector rotation; investors this week sold off technology stocks more than healthcare and financials positions, an inversion of relative sector performance this year.

SPDR Technology (XLK) slipped 3.37 percent, while SPDR Healthcare (XLV) and SPDR Financials (XLF) declined only 1.39 percent and 2.10 percent, respectively. The more defensive SPDR Utilities (XLU) lost only 0.58 percent and SDPR Consumer Staples (XLP) fell 0.17 percent.

iShares Edge MSCI Min Vol USA (USMV) outperformed this week, retreating only 0.47 percent. USMV has been an outperformer over the past year thanks to outperforming during corrections.  Vanguard Dividend Appreciation (VIG) also beat the market, sliding 1.27 percent.

The possibility of a trade deal with China has investors nervous, resulting in the sell-off this week. After China sent back a draft proposal with most of the trade enforcement mechanisms, particularly regarding intellectual property, stripped out, negotiations hit a roadblock.   If China’s move was a gambit, we could see a trade deal resolution relatively quickly.

Economic data remains strong. The Job Openings and Labor Turnover Survey showed 7.5 million openings in March. Weekly jobless claims held near four-decade lows at 228,000. Although it doesn’t have a significant impact on our economy, Canada reported an incredible jobs number that adjusted for population would be approximately 900,000 jobs in the United States.

Crude oil was down a modest 0.37 percent and traded in a tight range for the week. SPDR Energy (XLE) declined 0.40 percent thanks to crude’s stability.

Disney (DIS) and McKesson (MCK) outperformed this week thanks to solid earnings reports. Disney (DIS) matched year-ago earnings of $1.84 per share, but analysts expected a dip to $1.58 per share. McKesson (MCK) rallied as much as 9 percent midweek following its earnings beat. The entire healthcare provider sector has been under pressure but, the solid results alleviated some investor concerns.

 

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