US Stock Market: Trade Talk Woes Neutralized, Growth Worries Rise to Forefront

Position-squaring and light short-covering ahead of the long U.S. holiday weekend helped boost the major U.S. stock indexes on Friday. However, the rally was not enough to erase this week’s losses. Volume was relatively low as most major players started the Memorial holiday weekend early

All three major indexes posted inside move, which indicates investor indecision. This reflected the two lines of thought governing the trade at this time. There are those investors who are convinced the trade dispute will end quickly and those who are growing more convinced that the trade war will take longer than expected.

In the cash market on Friday, the benchmark S&P 500 Index settled at 2826.06, up 3.82 or +0.14%. The blue chip Dow Jones Industrial Average finished at 25585.69, up 95.22 or +0.37% and the technology-driven NASDAQ Composite index closed at 7637.01, up 8.73 or +0.12%.

Trade Talk Neutralized This Week

If you’re keeping score on U.S.-China trade relations, then last week was a tie with U.S. chatter being offset by Chinese rhetoric and vice-versa.

The week started on a down note as investors reacted to a report that U.S.-China trade talks had stalled. The strongest language from China came on Thursday from the country’s Commerce Ministry. The Trump administration was relatively quiet until Friday when the President offered some encouragement.

Ministry of Commerce spokesperson Gao Feng said Thursday, “If the U.S. would like to keep on negotiating it should, with sincerity, adjust its wrong actions. Only then can talks continue.”

President Trump countered the comment by predicting a swift end to the ongoing trade war with China, although no high-level talks have been scheduled.

“It’s happening, it’s happening fast and I think things probably are going to happen with China fast because I cannot imagine that they can be thrilled with thousands of companies leaving their shores for other places,” Trump said during remarks at the White House, providing no evidence of such an exodus.

Growth Worries Rise to the Forefront

The easiest headline to write last week was in the neighborhood of “Market Down on U.S.-China Trade Relations”. That may have been true per se, but the biggest reaction by stock market investors was to weaker-than-expected U.S. economic data. In fact, that news drove the price action in Treasurys, Forex, crude oil and the stock market. It moved the market than the Fed if you want some perspective.

The Fed minutes said on Wednesday that policymakers are in no hurry to move interest rates up or down and an escalation in the U.S.-China trade war could keep them on hold even longer. Stock market investors yawned at the news since it was largely priced into the trade.

Conditions changed rather quickly on Thursday with stocks plunging after a report showed U.S. manufacturer growth hit a multiyear low in May. On Friday, the government said U.S. durable goods orders dropped 2.1% in April.

Moving forward, investors are going to have to deal with the trade dispute and the economic cracks showing in the economy. However, the markets could drift into sideways mode if the labor market remains on solid growth and inflation stays muted. A rangebound trade will also develop if the market stays balanced between those who are looking for a short-term end of the trade dispute and those who are preparing for a long-term dispute.