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Leigh Baldwin & Co.

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Day Traders Diary

9/18/18

 

Stocks rallied on Tuesday as investors shrugged off a fresh exchange of tariffs between the world's two largest economies. The S&P 500 climbed 0.5%, reclaiming its Monday decline, while the Dow Jones Industrial Average and the Nasdaq Composite advanced 0.7% and 0.8%, respectively. The major averages opened higher and climbed into the afternoon, finishing a step below their best marks of the day.

President Trump announced after Monday's close that the U.S. will be slapping tariffs on $200 billion worth of Chinese goods starting on September 24. The tariff rate will start at 10%, but will increase to 25% on January 1. Mr. Trump also said he will impose additional tariffs on $267 billion worth of Chinese goods if Beijing retaliates -- which it vowed to do with 5-10% tariffs on $60 billion worth of U.S. goods.

Like Wall Street, Asian stocks also managed to rally despite the seemingly negative headlines, with China's Shanghai Composite adding 1.8%.

In an attempt to explain Tuesday's gains, some analysts pointed to the fact that the initial 10% tariff rate by the U.S. was not as harsh as expected -- thereby reflecting a willingness to negotiate -- while others said the rally reflects the market's belief that the U.S.-China trade dispute will eventually die down. Regardless, it's worth noting that short-covering activity was likely a helping hand for the bulls.

The consumer discretionary (+1.3%) and information technology (+0.6%) sectors outperformed on Tuesday after leading Monday's retreat. The trade-sensitive industrial sector (+0.9%) was also strong, as was the energy space (+0.7%), which benefited from a rise in the price of crude oil; WTI crude futures jumped 1.5% to $69.87/bbl.

Oil rallied amid speculation that OPEC won't be raising production in the short term to offset any lost supply from Iran, which will soon be facing U.S. oil sanctions. Also of note, Bloomberg reported on Tuesday that Saudi Arabia is comfortable with Brent above $80 a barrel.

On the corporate front, Oracle (ORCL 49.03, -0.15, -0.3%), FedEx (FDX 241.58, -14.15, -5.5%), General Mills (GIS 44.13, -3.64, -7.6%), and AutoZone (AZO 732.76, -14.76, -2.0%) fell after reporting earnings. Separately, Tesla (TSLA 284.96, -9.88) lost 3.7% on news that it's under investigation by the Justice Department over CEO Elon Musk's August 7 tweet about taking the company private.

In the bond market, U.S. Treasuries tumbled on Tuesday, sending yields higher across the curve, with the benchmark 10-yr yield jumping five basis points to 3.05% -- which marks its highest level in four months. The Fed-sensitive 2-yr yield ticked up one basis point to 2.79%, hitting its highest level in over a decade.

Reviewing Tuesday's economic data, which was limited to the NAHB Housing Market Index for September:

  • The NAHB Housing Market Index for September came in at 67 (Briefing.com consensus 66), unchanged from the August reading.

On Wednesday, investors will receive the weekly MBA Mortgage Applications Index, August Housing Starts and Building Permits, and the Q2 Current Account Balance.

  • Nasdaq Composite +15.3% YTD
  • Russell 2000 +11.4% YTD
  • S&P 500 +8.6% YTD
  • Dow Jones Industrial Average +6.2% YTD
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    • Headlines provided by Briefing.com
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