Market slides on exhaustion as tariff talks and earnings uncertainty loom

“A look at the chart screams overbot and the RSI (Relative Strength Index) is confirming that… The RSI closed at 75.5728 – Well above 70 – which is level that typically suggests an exhausted market…”

This was how I ended my note yesterday morning – and that is exactly what happened…. stocks slid, falling from the all-time highs that they registered on Thursday afternoon – reflecting exhaustion.

The Dow lost 422 pts or 1%, the S&P down 50 or 0.8%, the Nasdaq – 188 or 0.9%, the Russell down 35 pts or 1.5%, the Transports – 235 pts or 1.5%, the Equal Weight S&P lost 65 pts or 0.9% while the Mag 7 gave back 401 pts or 1.5%.

Yes, you can point to losses in TSLA -6.8%, AAPL -1.7%, GS – 1.8% and maybe SHW – 2.25% or you can blame the latest tariff talk and you can blame the fallout from the BBB that got passed on Thursday OR you can blame exhaustion – Period.

Now the media is pointing to the angst created by the latest tariff drama put forward by Trump…. setting tariff amounts for Japan, 25%, South Korea, 25% and South Africa, 30% beginning in August. These are separate from existing sectoral tariffs (e.g., on autos, steel, or aluminum) and are intended to address trade deficits. They apply to all goods from these countries unless they reach trade agreements with the U.S. or manufacture products within the U.S., in which case no tariffs would apply. Now, additionally, Trump warned that if these countries raise their own tariffs in retaliation, the U.S. will increase its tariffs by an equivalent amount (So if Japan adds a 10% retaliatory tariff, Trump will impose an additional 10% retaliatory tariff on top of the announced rates.).

I’d say ‘ok’, but I’m not subscribing to that argument right now, why? Because South Africa’s President Cyril Ramaphosa emphasized ongoing diplomatic efforts to negotiate exemptions. Japan and South Korea also expressed regret and committed to intensified trade talks to mitigate the impact before the August 1 deadline. So, I’m in the camp that this will get resolved and tariff rates will not be what they appear. Again, I do not think August 1^st is a hard deadline, because July 9^th was not a hard deadline either as long as countries come to the table in good faith. (in good faith is the key theme here).

Now, I understand that the media NEEDS a reason to explain the move, but don’t get carried away. I am also discounting the BBB and the move in TSLA – (TSLA is up $1.40 or +1.3% in the pre-mkt) as reasons for the decline. I am in the exhausted camp, nothing more, nothing less. Remember – the S&P gained 30% off the April low, Nasdaq + 39%, Industrials + 22%, the Russell + 29%, the Transports 29%, the Equal Weight S&P + 23% and the Mag 7 + 43%.

Of the 11 S&P sectors Utilities bucked the trend and rose 0.2% while Consumer Discretionary was the loss leader – down 1.3%. Financials, Communications, Energy, Basic Materials all lost 0.9%, Healthcare, Real Estate & Tech – 0.8%, Industrials – 0.35% and Consumer Staples gave up 0.1%.

Further down the list – we saw weakness in Home Builders – 1.4%, Retail -0.9%, Airlines – 1.3%, Disruptive Tech – 0.9%, The Value trade down 0.7%, the Growth trade down 0.7%, Semi’s lost 1.9%, Metals and Miners – 1.3%. Emerging Markets got slapped as well – down 1.4% now THAT was a direct tariff hit.

And if you took the contra bets you won…the DOG +0.9%, the SH + 0.75%, the PSQ + 0.8%, the VIXY + 1.2% while the SPXS (triple levered short) gained 2.4%.

Bonds got hit – the TLT down 0.9% and the TLH down 0.7%, while the AGG lost 0.4%. Yields went up and are up again overnight…. The 2 yr is now yielding 3.89%, the 10 yr 4.41%, the 30 yr at 4.95% (inching ever closer to that 5% warning flag).

Oil rose by $1 or 1.4% to end the day at $67.92…. while the XLE fell…. Now you can point out a couple of reasons for the disconnect. Ongoing concerns in the Middle East, Iran suspended cooperation with the U.N. nuclear watchdog, and that continues to influence prices. This move raised fears of potential supply disruptions from Iran supporting higher oil prices despite recent ceasefire developments between Israel and Iran. And then we had OPEC+ output hike expectations which may have been interpreted as confidence in demand, supporting a short-term price rise while a U.S.-Vietnam trade deal and expectations of lower U.S. interest rates, could have also boosted optimism about global economic activity and oil demand.

This morning oil is down 50 cts at $67.40 – just on the north side of the trendline…. which is $66.70. I’m still in the camp where prices are going lower.

Gold rose by $3.50 to end the day at $3,346 and this morning it is down $7.50 at $3,335/oz – below the trendline…. leaving a possible test of intermediate support at $3,215.

There is no eco data today that will influence markets, but tomorrow brings us Mortgage Apps, wholesale trade sales and inventories and the June FOMC mines.

Remember – investors are now preparing for earnings which start next week.

This morning US futures are mixed …. Dow futures down 50, S&P’s up 6, Nasdaq up 50 while Russell is up 7. Trump added to the list of countries expected to face higher tariffs on August 1^st unless they come to the table - In my opinion – none of them are really a concern…Bangladesh, Bosnia, Herzegovina, Cambodia, Indonesia, Malaysia, Myanmar, Serbia, Thailand and Tunisia.

European markets are essentially flat; Germany is the leader – up 0.3%. with France and Spain down 0.1%.

The S&P closed at 6229 – down 50 pts. This morning markets are mixed as investors try to price in more uncertainty – uncertainty around trade, uncertainty around geo-politics and uncertainty around earnings….…. After yesterday’s sell off – the RSI is now just below the overbot line – but still suggesting some weakness ahead. I would not be surprised if we saw the S&P trade down to the 6150 range.

Pasta primavera

For this you need penne, or farfalle (your choice), 1 cup broccoli florets, 1 cup asparagus, trimmed and cut into 2-inch pieces, 1 medium zucchini, sliced into half-moons, 1 cup cherry tomatoes, halved, 1 small red bell pepper, thinly sliced, 1 cup snap peas, 1 carrot, thinly sliced and 1 c of vegetable broth.

For the sauce you need: olive oil, 3 cloves garlic, chopped, 1 cup heavy cream – (you can use half-and-half), grated Parmegiana cheese, plus extra for serving, pasta water (tears of the Gods), zest and juice of 1 lemon, 1 tsp dried Italian seasoning, s&p to taste.

Bring a large pot of salt water to boil.

Cook pasta according to package instructions until al dente (about 8 minutes, depending on type). Reserve 1 cup of pasta water, then drain and set aside.

In a large sauté pan heat olive oil over medium heat. Add broccoli, asparagus, and carrots (if using). Sauté for 3-4 minutes until slightly tender but still crisp.

Add zucchini, bell pepper, and snap peas. Cook for another 2-3 minutes. Add cherry tomatoes and cook for 1 minute until it is warm. Remove vegetables from skillet and set aside.

In the same skillet, add a bit more olive oil. Sauté garlic over medium heat until fragrant (don’t burn it).

Pour in vegetable broth scraping up any browned bits. Add heavy cream, lemon zest, lemon juice, and Italian seasoning. Simmer for 2-3 minutes until slightly thickened.

Stir in Parmesan cheese until melted. If the sauce is too thick, add a splash of the pasta water. Season with s&p.

Add the cooked pasta and sautéed vegetables to the skillet. Toss gently to coat everything in the sauce. Cook for 1-2 minutes to warm through.

Serve immediately and make sure you have extra cheese on the table.