US Stock Market Overview – Stocks Surge on Oversold Bounce

Dovish Fed comments help buoy equity markets
David Becker

US stocks surged on Tuesday, as an olive branch out of Mexico and China led to an oversold bounce. Technology shares rebounded from an oversold condition as the Nasdaq dropped into correction territory on Monday. Bullish commentary from the Fed and a willingness of both China and Mexico to negotiate, helped stock prices generate a rebound. Meanwhile, Trump was on the tape again on Tuesday saying he is willing to levy a tariff on Mexico as early as next week if he does not get what he wants. This was countered by GOP senators that warn the White House they are prepared to block Trumps Mexico tariff, and they have the vote for an overriding veto.

China and Mexico Are Ready To Talk

The issues related to both China and Mexico has the US fighting a trade war on multiple fronts. On Tuesday President Trump was in London, saying that he is prepared to sign a bilateral trade agreement with the UK. China and Mexico both signaled a willingness to negotiate with the US over escalating trade issues, while the Trump administration defended its use of tariffs to gain concessions from trading partners.

China was on the full offensive. Beijing released a government policy paper on trade issues, accusing the US of derailing the negotiations, which broke down in May. China is saying that the Trump administration’s, use of tariffs are harming the global economy and that China wouldn’t shy away from a trade war if need be. Despite the rhetoric, the Chinese government suggested a willingness to return to negotiations.

The Trump administration is aggressively using tariffs to gain concessions from both Mexico and China. The issue is that these tariffs are hurting US consumers. Trump is threatening to apply an escalating 5% tariff on all Mexican imports, or about $350 billion of goods, starting June 10, while also threatening a 25% tariff on an additional $300 billion of Chinese imports that could begin later in the month. If these were levied, US ecomic growth would slow considerably.

The Fed is Considering a Rate Cut

Federal Reserve Vice Chairman Richard Clarida said that the Fed was analyzing the inverted yield curve and understands the importance of this signal. Clarida said that an inverted yield curve that percists need to be evaluated, as the Fed might need to fend off a recession. The yield on the 10-year Treasury note is now below that of the 3-month bill, inverting part of the so-called yield curve. The 10-year yield is close to 2.15% compared to the 3-month yield which is closer to 2.30%. Clarida didn’t clarify how long the yield curve would have to stay inverted for him to take seriously. Additionally, Fed Chairman Jerome Powell said that the central bank is closely monitoring the recent escalation in trade tensions and would be ready to react if the US economy began to stall.

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