Stocks continued to fall as trade tensions rule the roost. The Dow was off 221 points to 25,126 on lighter trading volume. Yesterday saw a downside reversal and both IBD and BTS are defensive. Markets are now down about 6% from recent highs and the S&P 500 today held support at the 200-day moving line.
It’s all about trade! John and I attended a presentation by Fidelity Investments yesterday and they said trade between the US and China is the main driver of market action right now. The premise was that if a trade deal is worked out the markets will do well but if not, then there is downside risk. The latest trade news is that China upped the ante by playing the “rare earth card” which sent US markets lower. The US used to be the leading producer of rare earth elements but ceded leadership to China in the late 1980’s. In 2010 China threatened to reduce rare earth exports to Japan and this event signaled to many that China could and would use rare earth as a weapon in a dispute. If China follows through on the threat look to see the US revive its long shuttered rare earth mining capabilities. One guru said that rare earth elements are about as common as copper in the surface of the earth, but the big issue is that they are very hard to extract. He said they are “easy to find but hard to process”.
With 97% of companies in the S&P 500 Index having reported earnings, the results show a combined earnings decline of 0.4% which makes this the first negative quarter since Q2 2016 at -3.2%. The gurus had expected earnings to fall 4% so the results were better than expected. The current forward PE ratio for the index is 16.1 which is below the 5-year average but above the 10-year average.
Over the Memorial Day weekend, the scouts did a maintenance project and flag ceremony at the Seattle GAR (Grand Army of the Republic) cemetery. The GAR is an old small cemetery filled with Union Soldiers who fought in the Civil War but moved to Seattle after the war. We pointed out to some scouts the grave markers which showed several of those buried went to war when they were 13 and 14 years old. It gave our boys, and us, a bit of perspective.