Key Takeaways
- Markets Continue Downtrend With Major Indices Facing Persistent Selling Pressure
- Tariff Uncertainty And Conflicting Signals Add To Investor Concerns
- Economic Reports And Volatility Remain Key Market Focus This Week
Markets are pointing to continued weakness in premarket with all the major indices down. This comes following last week when the S&P 500 dropped 3%, and the Nasdaq Composite fell 3.5%. The Russell 2000 was down nearly 5% and the Dow Jones Industrial Average lost 2.3%.
As earnings season wraps up, the focus of the market has shifted dramatically. The prior quarter’s performance and outlooks provided by companies are being overshadowed by concerns about tariffs. In fact, according to FactSet, 259 of the companies in the S&P 500 mentioned tariffs during earnings conference calls this quarter. That is the highest number in 10 years.
What’s making the tariff situation more challenging is the on again off again nature of them. The fluidity with which they are continually changing is making costs of production difficult to forecast. At the same time, retaliatory tariffs from other countries are impacting sales forecasts. This is not only affecting businesses, but also consumer confidence. Conflicting messages out of Washington haven’t helped with Commerce Secretary Howard Lutnick saying on Sunday there would be no recession. However, at the same time, President Trump said he couldn’t rule one out.
I’m a big believer in controlling the things you can control and not worrying about those you cannot. Investors cannot control trade policies in the short run. All we can do is try understanding their impact on markets. Because of that, I think the market is going to largely focus itself on economic reports. In addition to the data we typically emphasize most, I also think reports like tomorrow’s NFIB Small Business Optimism Index might be worthwhile monitoring. Any report reflective of opinion, be it consumer or corporate, could be the first signs of how the economy will perform moving forward.
Speaking of economic reports, in addition to tomorrow’s NFIB Small Business Optimism Index, we’ll also get the most recent JOLTS report on job openings. Then on Wednesday, the most recent Consumer Price Index (CPI) is due out. That will be followed by the Producer Price Index (PPI) on Thursday.
Earnings season is winding down and while I believe tariffs are the bigger story, we do have a handful of companies reporting this week. Among the highlights are Oracle after the close today. Oracle can be a good prognosticator for worldwide corporate spending. Before the open tomorrow, we’ll hear from Kohl’s, which can offer a good read on consumer spending. Then on Wednesday, Adobe reports.
As if tariffs weren’t causing enough volatility, lawmakers have until Friday night to pass a budget in order to avoid a government shutdown. Republicans have put forth a continuing resolution that would keep government open and kick the can down the road until September. With uncertainty because of tariffs already rattling markets, a government shutdown could prove disastrous. While I don’t think this is likely to happen, it is something worth monitoring.
For today, I’m keeping my eye on volatility. VIX is sitting just shy of 26 in premarket with the S&P 500 futures indicated down nearly 70 points. Should we get a rally, like we saw happen a couple times during the day in the past week, I would keep an eye on VIX. VIX typically increases when stocks fall and contracts when stocks rise. Therefore, I’d like to see a confirmation of any rally accompanied by contracting volatility. I’m also watching the S&P 500 200-day moving average. Stocks have bounced off that moving average four days in a row, but you can only pound that price level so many times before breaking it. Finally, I’m watching oil prices which have been down for seven weeks in a row. Oil prices often fall when markets are worried about a recession and given the conflicting messages on tariffs, oil might offer the clearest indication what the market is thinking. As always, I would stick with your investing plans and long-term objectives.
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