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Stocks Fall as China Tensions Percolate: What Wall Street’s Saying

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Stocks fell Thursday with an overhang on the market from a worsening relationship between the U.S. and China. Wall Street, though, suggests that stocks aren’t selling off hard because the Federal Reserve’s comments are reverberating throughout the market for the time being. 

All three major U.S. indices fell, with the S&P 500 down 0.78%. The 10 year treasury yield slipped to 0.67%. Yields fall when prices rise.

Cyclical sectors like banking and oil fell considerably, a negative sign for the economy and stock market. The S&P 500, home to stocks at stretched valuations, has held flat for almost a month now. 

Positively, the S&P 500 equal weighted consumer discretionary index, which puts Amazon’s  (AMZN) - Get Inc. Report weighting on equal footing with the rest of the index — rose 1.6%. The consumer represents the majority of economic output in the U.S. and fiscal and monetary stimulus is supporting spend. 

Spoiling market sentiment was a clearly worsening relationship between the U.S. and China. And experts on China say the end of the trading partnership between the two nations may be near

The latest: the Senate passed a bill — now up for the House’s vote — that would delist Chinese companies from American stock exchanges for not adequately making audit records and accounting transparent. 

That’s the latest in the larger spat between the two countries, leading many to believe a trade agreement may not ever be completed. 

Apple  (AAPL) - Get Apple Inc. Report, which would likely see retaliatory tariffs from China if the relationship keeps worsening, fell 0.75%. 

The Fed did say Wednesday that it will continue printing money to inject into the baking system and all areas of the bond market. Investors knew that but want clarity that the programs won’t fade. Te stimulus enables unemployment to level off and bridges the gap between lockdowns and reopenings.  

Here’s what Wall Street’s saying: 

Tony Dwyer, Chief Market Strategist, Canaccord Genuity:

“Still following the Fed. The only certainty in the current environment is the continued promise from the Fed of unlimited support that was again made evident in the FOMC minutes released Wednesday.” 

Brian Levitt, Global Markets Strategist, Invesco: 

"Many countries appear to have successfully “bent the curve” in the number of new daily coronavirus cases. In the US, the 7-day average of new cases peaked on April 11, at 31,942, and that number has been consistently below 30,000 since May 3. The 7-day average of new cases on May 15 was 22,988, the lowest since early April 1. Testing in the US appears to be ramping up, although it is still below the levels recommended to fully control the virus. During the week of May 5, the US averaged nearly 300,000 new coronavirus tests a day, nearly double the roughly 150,000 daily tests performed in early April. Market volatility, as measured by the CBOE VIX index, has been more than halved since reaching an all-time high at the end of March 2020. Financial conditions have eased meaningfully since the middle of March.6 Conditions have remained relatively tight from a historical perspective but have been relatively stable for over a month. That has been driven by the relative stability of both the US dollar7 and US investment grade corporate bond spreads.” 

Michael Sheldon, Chief Investment Officer, RDM Financial Group: 

"You need to monitor a number of different macro-economic data points and financial conditions over time. Some of the trends I watch are 1) the performance of financials, industrials, transports and small caps which have lagged; 2) high beta versus low beta; 3) consumer discretionary versus consumer staples equal weighted; 4) oil versus gold; 5) high yield credit spreads; 6) inflation break-evens; 7) copper prices; 8) weekly claims; 9) EPS revisions.” 

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