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Stock Market News For June 1, 2018

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Markets ended sharply lower on Thursday, negating previous day’s gains on renewed fears of a global trade war. Yesterday’s decline was broad-based as the Trump administration decided to levy tariffs on steel and aluminum imported from Canada, Mexico and the European Union. The decision of the U.S. government has fueled investors’ concern that retaliatory tariffs likely to be imposed on several U.S. exports. All three major indexes ended in the negative territory in the last trading day of May.

The Dow Jones Industrial Average (DJI) closed at 24,415.84, declining 1% or 251.94 points. The S&P 500 Index (INX) also decreased 0.7% to close at 2,705.27. The Nasdaq Composite Index (IXIC) closed at 7,442.12, shading 0.3%. A total of 8.09 billion shares were traded on Thursday, higher than the last 20-session average of 6.63 billion shares. Decliners outnumbered advancers on the NYSE by 1.83-to-1 ratio. On the Nasdaq, decliners had an edge over advancers by 1.58- to -1 ratio.  The CBOE VIX increased 3.3% to close at 15.43.

How Did the Benchmarks Perform?

The Dow lost 1% with 29 of the 30-stocks in the blue-chip index closed in the red while one traded in the green.

The S&P 500 decreased 0.7% led by 1.6% decline of the Consumer Staples Select Sector SPDR (XLP), 1.5% drop in Industrials Select Sector SPDR (XLI) and 1.1% decrease in Healthcare Select Sector SPDR (XLV). Notably, ten out of 11 sectors of the benchmark index ended in negative territory.

The Nasdaq Composite lost 0.3% due to broad-based market decline.

Global Trade War Fear Reignites

On May 31, Commerce Secretary Wilbur Ross announced that the U.S. government will impose 25% tariff on steel and 10% on aluminum from the imports of Canada, Mexico and the European Union from June 1. Notably, President Donald Trump levied these tariffs on March 1.

Canada and Mexico was so far exempt from these tariffs as the U.S. government was negotiating with these countries on North American Free Trade Agreement (NAFTA). The European Union was also left out as many of these countries are politically close allies of the United States.

As a result of these trade conflicts, U.S. exports have become vulnerable to retaliatory tariffs.  Canadian Prime Minister Justin Trudeau said his country would impose a 25% tariff on steel and 10% tariff on aluminum on imports from the United States.

Mexico said it would target several U.S. goods with tariffs including pork bellies, apples, grapes, cheeses and flat steel. The European Union is also considering imposing tariffs on a broad range of U.S. imports.

As fallout of yesterday’s tariff announcement, stock prices of The Boeing Co. (BA - Free Report) and Caterpillar Inc. (CAT - Free Report) declined 1.7% and 2.3%, respectively, as these companies generate a large part of their revenues in these countries. Boeing carries a Zacks Rank #2 (Buy) while Caterpillar carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Economic Data

The Commerce Department reported that personal income for the month of April increased $49.5 billion or 0.3% — in line with the consensus estimate. This was an improvement over the 0.2% growth recorded in the previous month. Personal disposable income for the month of April increased $60.9 billion or 0.4%.

Meanwhile, U.S. consumer spending increased $79.8 billion or 0.6% in April, outpacing the consensus estimate of an increase of 0.4%. This was the biggest gain in five months.

PCE price index, a key inflation barometer used by the Fed, rose to 12-month rate of 2% in April. The core PCE — excluding food and energy — increased 2% in April, remaining same sequentially.

Initial jobless claims fell 13,000 in the week ended May 26 to 221,000, compared with a forecast of 228,000.

Monthly Roundup

For the month of May, all three major stock market indexes ended in the green extending their gains posted in April. The Dow 30 gained 1.1%, S&P 500 increased 2.2% and the Nasdaq composite grew 5.3%.

First-quarter earnings results have been exhibiting strong momentum so far. For the 493 S&P 500 members that have reported results already, total earnings are up +24.3% from the same period last year on +8.7% higher revenues. This is the highest quarterly earnings growth pace in seven years.

However, trade conflicts continue to take a toll on the market resulting in severe volatility. Trade negotiations between the United States and China so far failed to result into any fruitful conclusion. Moreover, Trump administration has decided to extend tariffs on core metals on Canada, Mexico and the European Union.

In addition, hike in yield of 10-year U.S. Treasury Note due to inflationary fears and political turmoil in Italy and Spain also created market fluctuations.

Meanwhile, oil prices have recovered following a report by Reuters that Saudi Arabia, other OPEC countries, and non-OPEC allies led by Russia are likely to abide by a global pact on cutting oil supplies until the end of 2018.

Stock That Made Headline

Ulta Beauty Down Despite Q1 Earnings and Sales Beat

Ulta Beauty Inc. (ULTA - Free Report) began fiscal 2018 on a solid note with first-quarter results beating the estimates and improving year over year. (Read More)

American Eagle Down Despite Q1 Earnings & Sales Beat

American Eagle Outfitters Inc. (AEO - Free Report) declined nearly 1.8% on May 31, despite accelerated sales, continued sequential margin improvement and EPS growth in first-quarter fiscal 2018. (Read More)

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