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Things Were Going Great for Wall Street. Then the Trade War Heated Up.



The reserves began in 2019 with the fastest start in more than three decades, as the economy grew faster than expected, the Federal Reserve seemed to abandon its plans to continue raising interest rates and the rancor of the trade war between Washington and Beijing seemed to finish.

By April 30, the S & P 500 had reached a record.

Then the tweets about the trade began, which caused the markets to plummet, ending Friday with the S & P 500, down 1.3 percent. The benchmark index ended in May with a 6.6 percent drop, its first monthly decline of the year and its worst decline since a sell-off at the end of 2018.

Friday's decline came after President Trump said Washington would impose a new tariff on all imports from Mexico, a tax that could rise by up to 25 percent, unless the country's government takes measures to address the problem. flow of migrants across the United States at the border, and Beijing announced plans to reveal a blacklist of foreign companies and people.

China's Ministry of Commerce did not name the companies on the list or say what would happen to them, but the move is an apparent retaliation against the Trump administration's moves to deny US technology to Chinese companies.

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Constellation Brands, Corona's brewery and other Mexican beer brands, fell approximately 5.7 percent. Analysts at JPMorgan Chase estimate that more than 70 percent of their sales come from products imported from Mexico.

Kansas City Southern, a railroad that has a large business of transporting oil products and cars across the southern border, fell 4.5 percent.

The peso fell sharply, falling 2.5 percent against the US dollar.

The catalyst related to Mexico was new, but the slump remained in line with the broader signals markets sent this month, suggesting a growing weakness in the global economy.

Reference prices for US crude oil fell more than 5 percent on Friday and more than 16 percent in the month. Iron ore and copper, industrial metals closely related to China's growth prospects fell after a key economic report showed that Chinese factory activity contracted in May.

The growing risks to global growth seem to be at odds with a series of recent reports suggesting substantial strength in the US economy. At 3.6 percent, unemployment remains at its lowest level since 1969. Salaries are growing at a strong pace. And corporate profits are still high. In the recently completed first quarter earnings reporting season, approximately 75 percent of the companies exceeded the expectations of Wall Street badysts.

But this month, solid fundamentals have been drowned out by the growing volume of the trade dispute, and investors are increasingly obsessed with any indication that growth is slowing.

The government bond markets have been sending some of the strongest warning signs. A global The decline in long-term interest rates this month, which is generally considered a sign of threats to growth, has begun to baffle investors on Wall Street.

It continued on Friday, and the yield on 10-year Treasuries fell to 2.13 percent, according to Bloomberg, its lowest level since September 2017.

To some extent, those low yields are taking into account growing expectations that the Federal Reserve will cut interest rates. According to the futures market of the Federal Reserve Funds, traders are betting around a 90 percent chance that the Fed will reduce interest rates by the end of the year, an increase of around 38 percent to mid April.

Expectations that the Federal Reserve is ready to support financial markets, a view that the central bank has never fully supported, has probably cushioned the stock to some extent this month. But investors are also likely to be increasingly sensitive to any indication of whether rate cuts will materialize in the coming months.

The markets say "there is no inflation and it has a too strict policy and needs to start thinking about lowering interest rates," said James Bianco, president of Bianco Research, an economic consulting firm in Chicago. "Now, I think the Fed's hand is somewhat forced."


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