Breaking the Streak. All three major indexes ended in the red on Friday after trading close to break even for most of the day. Stocks lost after rising for three days, as China’s state media ramped up trade rhetoric, blaming the U.S. for heightened tensions and called it a “bully.” The U.S. is planning to lift metals tariffs on Canada and Mexico, while consumer sentiment has hit a 15-year high. Deere stock (ticker: DE) tumbled after missing on earnings for a fifth straight quarter. China’s Luckin Coffee (LK) closed 20% above initial-public-offering price on its market debut. In today’s After the Bell, we…
- review the latest reading on consumer sentiment;
- examine mixed signals from recent economic data;
- and look at the winners and losers of a potential Fed rate cut.
The market closed lower on Friday amid a dearth of news about progress in making a trade deal. The Dow Jones Industrial Average fell 98.68 points, or 0.38%, to close at 25,764. The S&P 500 dropped 16.79 points, or 0.58%, to end at 2859.53, and the Nasdaq Composite fell 81.76 points, or 1.04%, to close at 7816.28.
The Index of Consumer Sentiment by the University of Michigan rose to 102.4 in early May from 97.2 in April. It’s the highest level for the index in 15 years. Most of the month’s sentiment rise came from the component of future expectations, which rose to 96.0 from April’s 87.4, the highest level since 2004.
The headline number has now fully recovered from a drop earlier this year and last year, which was caused primarily by the U.S. government shutdown and financial-market volatility. However, it’s worth noting that the survey responses were recorded largely before the recent tension in U.S.-China trade negotiations. The survey’s chief economist Richard Curtin told The Wall Street Journal that negative references to tariffs rose in the past week, and they “are likely to rise further in late May and June.”
The economy is giving off mixed signals, wrote Ed Keon, chief investment strategist at QMA. Some are very positive–including strong gross domestic product in the first quarter, a healthy job market, and higher productivity growth–but some other data are weak, such as lower purchasing managers indexes (PMIs), and a drop in both retail sales and industrial production.
Keon suggests investors remain cautious about the current status of the economy. The weaker PMIs are better forward-looking indicators, he noted, while the labor market and GDP data tend to be lagging indicators about the past.
The most positive economic development, however, has been an increase in productivity. If that strength continues, it will trump all our other worries, wrote Keon. “Strong productivity can increase wages without increasing inflation or squeezing profit margins. Economic growth could reach the 3% target despite slower labor force growth if productivity growth can stay north of 2%.”
Inflation has remained below the Federal Reserve’s target for over a decade, which has triggered some pressure in the market to push the Fed to keep rates low. President Donald Trump has been tweeting intensely about the benefits of an interest-rate cut.
The stock market typically sells off in response to a rate cut, because it implies that the economy is on the decline, according to Brett Wander of Charles Schwab. But if investors view the rate cut as preemptive because of low inflation, it could be positive for equities and fixed income, as the additional stimulus might further extend the longest economic expansion in U.S. history, wrote Wander.
Home owners stand to benefit from a rate cut because they can refinance to lower-rate mortgages and improve their financial positions. A Fed rate cut, however, would be bad for savers, since the yields of Treasuries, certificates of deposit, and money market accounts will likely all decline following the cut.
The Hot Stock
Under Armour stock (UAA) shot to the top of the index on Friday, thanks to an analyst upgrade.
Under Armour stock gained $1.70, or 7.8%, to $23.58.
JPMorgan analyst Matthew Boss upgraded the apparel maker to Overweight from Neutral today, following meetings with management that boosted his confidence in the company.
In the trailing 12-month period, Under Armour stock is up 15.7%.
The Biggest Loser
Deere stock (DE) sank to the bottom of the index, following its disappointing quarter.
Deere stock lost $11.17, or 7.7%, to $134.82.
The agriculture-equipment giant’s second quarter came in light, and full-year guidance was disappointing. That comes on top of two analyst downgrades earlier this week.
In the past 12 months, Deere stock is down 18.2%.
Write to Evie Liu at firstname.lastname@example.org
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