Friday, May,22 2020
GLOBAL MARKETS STRATEGY DAILY UPDATE

Capital Markets Overview

Stocks close near lows as the U.S. blacklists more Chinese firms

••• The S&P 500 declined 0.8% on Thursday, failing to overcome weak economic data and a fresh increase in U.S.-China tensions. The Dow Jones Industrial Average lost 0.4%, and the Nasdaq Composite lost 1.0%. The small-cap Russell 2000, however, eked out a 0.1% gain. Losses broadened out to ten of the 11 S&P 500 sectors, including energy (-1.5%) and information technology (-1.4%). The industrials sector (+0.2%) was the lone sector to close in positive territory, thanks to shares of Boeing (BA 139.00, +5.68, +4.3%) after the stock was initiated with an Outperform rating at RBC Capital Mkts. Regarding today`s economic data and U.S.-China news, it should be prefaced that the market wasn`t too shocked or upset by the news. That`s been the case since its March 23 low, at least. In fact, advancing issues outpaced declining issues at the NYSE, but the market was without the leadership from its mega-cap components. Weekly initial claims decreased by 249,000 to 2.438 million (BlueSuisse.com consensus 2.400 million), bringing the nine-week total to 38.636 million; continuing claims increased to an all-time high of 25.073 million, and existing home sales fell 17.8% m/m in April to a seasonally adjusted annual rate of 4.33 million (BlueSuisse.com  consensus 4.32 million). On the U.S.-China front, the White House issued a report criticizing China’s economic and military policies, President Trump accused China of a `disinformation and propaganda attack` on the U.S. and Europe, and a bipartisan group of Senators planned to introduce legislation to sanction China over new national security laws in Hong Kong. Separately, buyers appeared to concentrate their efforts on the retail space following positive earnings/reopening news from TJX Cos. (TJX 54.30, +3.45, +6.8%) and BJ`s Wholesale (BJ 35.25, +6.28, +21.7%). Best Buy (BBY 77.98, -3.56, -4.4%) was an exception despite reporting positive quarterly results. The SPDR S&P Retail ETF (XRT 39.09, +0.7) rose 2.0%. On a related note, Starbucks (SBUX 78.05, +0.29, +0.4%) told partners that it`s tracking slightly above its forecasted recovery curve. Treasuries finished the session little changed. The 2-yr yield declined one basis point to 0.15%, and the 10-yr yield was unchanged at 0.68%. The U.S. Dollar Index increased by 0.3% to 99.44. WTI crude increased another 1.3%, or $0.45, to $33.96/bbl. 


••• Reviewing economic data: 
Reviewing Thursday`s economic data, which featured the weekly jobless claims report:

•   Initial claims for the week ending May 16 decreased by 249,000 to 2.438 million (BlueSuisse.com consensus 2.400 million), bringing the 9-week total to 38.636 million. Continuing claims for the week ending May 9 surged by 2,525,000 to 25.073 million, which is an all-time high.
•   The key takeaway from the report in the market`s mind is that the pace of initial claims is decelerating; however, the real-world takeaway is that the economic damage runs deep as initial claims and continuing claims keep piling up.
•   Existing home sales plummeted 17.8% m/m in April to a seasonally adjusted annual rate of 4.33 million (BlueSuisse.com consensus 4.32 million). •  That is the lowest level of home sales since July 2010.
• The key takeaway from the report is that sellers pulled listings amid the COVID-related downturn in demand, yet the inventory constraint translated into higher prices for buyers remaining in the market.
•   The Conference Board`s Leading Economic Index decreased 4.4% m/m in April (BlueSuisse.com consensus -5.3%) following a downwardly revised (and record) 7.4% decline (from -6.7%) in March.
•   The key takeaway from the report is the Conference Board`s conclusion that the breadth and depth of the decline in the index do not imply a fast rebound for the economy at large, even with the imminent reopening of some sectors.
•   The Philadelphia Fed Index for May increased to -43.1 (BlueSuisse.com consensus -43.0) from the -56.6 reading in April.

••• Looking Ahead: 
•  Investors will not receive any notable economic data on Friday.

••• Top Market drivers:
•  Large-cap stocks close lower, trim weekly gains
•   Initial claims for the week ending May 16 decreased by 249,000 to 2.438 million (BlueSuisse.com consensus 2.400 million)
•   Fresh increase in U.S.-China tensions
•   Relative strength in the retail space

••• Stock Market Sectors:
• Strong: Industrials, Consumer Discretionary
•   Weak: Information Technology, Energy, Consumer Staples, Utilities

Alexander APOSTOLOV, PhD, MBA
Chief Investment Strategist
www.bluesuisse.com/en/analysis
analytics@bluesuisse.com

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