US Stock Market Overview – Stocks Slip on Weak Manufacturing Data

Consumer staple buck the trend
David Becker
S&P 500 weekly chart, June 24, 2019

US stocks finished the session lower on Monday and hovered between positive and negative territory for most of the trading session. US yields continued to head south with the US 10-year yield flirting with 2%. Gold prices surged higher on Monday rising 1.5% and helping to buoy mining stocks. The National Association of Manufacturers reported a gloomy outlook on US manufacturing which helped weigh on yields. President Trump on Monday signed an executive order of new sanctions on Iran which helped buoy oil prices. Most sectors were lower, led down by cyclicals and energy, while consumer staples bucked the trend.

Manufacturing Continues to Slide

The National Association of Manufacturing Outlook Index fell to 53.2 from 59.7. The NAM conducted the survey between May 22 and June 5; during that time President Donald Trump threatened to slap new tariffs on imports from Mexico unless the country took steps to stop the flow of Central American migrants to the U.S. border. The NAM reported lowered expectations for sales growth. The survey participants forecast their sales would rise 3.4% over the next 12 months, down from the forecast of 4.4% made in March. That in turn was a likely contributor to manufacturers reporting they expect to hire fewer people; the expected growth rate for full-time employment over the next 12 months was 1.6%, down from 2.1% in the March survey.

Trump Issues New Sanctions on Iran

President Trump signed an executive order imposing new sanctions on Iran. Speaking to reporters in the Oval Office, where he signed the order, Mr. Trump described the sanctions as hard-hitting and said they would deny Iran’s supreme leader, Ayatollah Ali Khamenei, Foreign Minister Javad Zarif and others access to financial instruments.

While earnings expectations remain stable the decline in US interest rates are helping to buoy riskier assets. The markets have now fully priced in 2-interest rate cuts of 50-basis points into 2019, and see an additional cut of 25-basis points in 2020. While yields on the US 10-year remain above 2%, yields on the German counter part the bund are below -31 basis points. Traders now see a lot further for the US 10-year to fall and with this in mind are pricing in several more cuts by the Federal Reserve. The corporate earnings picture continues to deteriorate, with companies exposed to tariffs taking a particularly strong hit. As profit reports just start to trickle in, the expectations are getting worse. Forecasters already were indicating negative earnings growth for the second quarter, but the outlook also has swung into red numbers for the third quarter.

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