Key Takeaways
- Stock Market Declines Amid Trade War And Economic Uncertainty Fears
- Gold Hits Record High As Investors Seek Safe Havens
- S&P 500 Below Key Support, Watching For Potential Rally
Stocks suffered yet another rough day on Thursday with tech stocks leading the way lower. The Nasdaq Composite fell nearly 2%, taking its losses for the week to 5%. The Russell 2000 was down by 1.5% and is off by 4% this week. The Dow Jones Industrial Average lost 1.3%, taking its total for the week to 4.7%. Finally, the S&P 500 dropped 1.4%.
For the S&P 500, the weekly loss is sitting at 4% and has now moved into correction territory. According to Bloomberg, this is the seventh fastest correction going back to 1929. This time around, it took just sixteen days. However, one thing I have noticed is the selloff has been very orderly. What I mean by that is, volatility is elevated, but it hasn’t spiked in a way you typically see during panic selling. So, while investors appear to be taking profits, it doesn’t quite feel like anyone is dumping all their holdings out of fear.
Since President Trump was sworn in, the market has lost 8%. I bring that up because it is clear this correction is largely being driven by fears over tariffs. Just yesterday, President Trump said if the European Union (EU) imposes tariffs on U.S. exports of alcohol, he will respond with tariffs of 200% on EU exports alcohol. With new levies being floated virtually every day, and the price of those levies in a constant state of flux, it is making the job of forecasting and budgeting nearly impossible for companies and markets do not like uncertainty. As a result, we’re seeing significant carnage in equities. Stocks like Apple are on pace for their worst week since Covid.
Concerns over how the trade war will affect the economy are also being felt by the individual consumer. According to a Conference Board survey, the number of people planning a vacation in the next six months is the lowest in fifteen years. That has caused stocks like Carnival Cruise to drop nearly 35% since its high in January. Other companies, in the retail sector, are warning of a consumer spending slowdown. One recent example is Ulta Beauty, who reported earnings last night that beat forecasts, but warned it sees a slowdown in sales. While shares are indicated higher by 6% in premarket, the stock is down 28% this year and hit a new 52-week low on Thursday.
One bit of good news to report is that Senate Democrats plan to vote in favor of the House’s Continuing Resolution (CR). The CR will keep the government funded through September, avoiding what could have been a costly shutdown. A shutdown would also have likely increased fears of a recession, something that is being discussed more and more as of late.
One of the reasons we’re hearing more talk of a recession has to do with oil. Crude oil prices are trying to close higher this week and break its fall of seven consecutive weeks. Falling oil prices are often a recession indicator. Another commodity that is frequently affected by fears of a recession is gold. The theory behind that is with equity markets weakening, investors look for safe havens such as gold. In premarket, gold is trading above $3,000 and at an all-time high.
For today, I think there are a number of things to monitor but I’ll start with equities and their 200-day moving average (DMA). Many investors see the 200 DMA as an important line of support. Once prices fall below that level, like they are currently, the DMA becomes resistance. Right now, the S&P 500’s 200 DMA is around 5739. With the S&P having closed at 5521 last night, and being down substantially for the week, it’s entirely possible we could see some sort of aggressive rally. However, until we break above that moving average, I remain cautious. In premarket, equity index futures are trading higher and I’m looking for one of two scenarios to play out.
Either we see a strong Friday because of some combination of being short-term oversold combined with short covering. Or we see the rally fail because investors are hesitant to hold long positions heading into a weekend at a time when so much market-moving news is taking place. Now, I realize I just hedged myself completely; however, I’ll point out that even should we see a strong rally today, until we close above that 200 DMA, I’m not sure any rally can hold for an extended period of time. A key indicator for how today plays out will likely be volatility. VIX closed on Thursday at 24.66 and is slightly lower in premarket. If we don’t see further contraction there, or worse yet an expansion, then I doubt any short-term rally can hold. As always, I would stick with your investing plan and long-term objectives.
tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.
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