Run for the hills.
That seems to be summing up the investor mood Friday after President Donald Trump shocked markets with a tweet promising tariffs on all Mexican imports until the illegal migrant situation is sorted. The likelihood of one more trade battlefield opening up means pretty much any asset associated with risk, notably equities, is taking a hit.
And while thoughts of scant avocado or tequila supplies may be on your mind, don’t forget that Mexico tariffs can impact big car makers, which have moved some production there — shares of Ford F, -2.26% and GM GM, -4.25% are under pressure. Meanwhile, some are worried Europe may be next in line for tariffs, and those markets are also down sharply.
Elsewhere are reports Beijing may be readying its own retaliatory measures against a U.S. crackdown on tech giant Huawei Technologies. And China manufacturing data had a poor showing for May, thanks to U.S. trade tensions.
To be sure, May is drawing to a close with a clang for investors. The S&P 500 is facing a more than 5% loss for the month, which brings us to our chart of the day, from Joel Kruger, currency strategist at LMAX Exchange. His chart spells out the possibility that stocks will revisit levels not seen since the December meltdown.
Kruger is specifically is looking at the 2,340 reached in December 24 which was the lowest level seen for the S&P 500 in the last two years — and revisiting that level would mean a 16% drop from Thursday’s close. That’s drop is more or less what Scott Minerd, chief investment officer and one of the world’s premier bond-fund managers of Guggenheim Partners, is predicting as well.
Kruger says investors need to face up to the fact that by now, any benefits from already depleted easy central bank and government stimulus could be offset by new negative shocks to the global economy, Kruger told MarketWatch in emailed comments.
He says the S&P 500 is facing what he calls an “ugly reversal month,” meaning that May started with a push to a fresh record high, but has ended with the S&P 500 coming all the way back down and breaking past a low seen in April. ”It’s an ugly picture when you go higher and then can’t do anything with it,” and then take out the previous monthly low, he says.
“This reversal introduces the prospect for a deeper drop over the coming weeks, easily capable of retesting the December 2018 low,” he says.”
“Overall, we remain skeptical the equity market will be able to keep doing what it’s done over the past decade, which is to find support at every dip for a run to fresh record highs,” he said.
