S&P 500 due a 10% fall from pre-trade war high, warns strategist


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Investors are set for a tough end to the week after fresh grousing over the trade-war with China.

Stock futures and global equities are pitching lower, which some blame on comments that reportedly showed up on a social media account linked to China’s state-run Economic Daily newspaper. The blog on Taoron Notes says: “If there is no real concrete action by the United States, it will be meaningless for you to come and talk.”

Those words were apparently aimed at Treasury Sec. Steven Mnuchin, who soothed investors this week by promising the U.S. side will be headed back to Beijing to resume trade talks that recently ended in no deal.

With one session left to go, the S&P 500 is facing a loss of roughly 0.2% for the week. That’s a far cry from the prior-week’s 2% drop, which was set off by a saber-rattling tweet from President Trump that led to fresh tensions and tariff volleys on both sides.

While the initial shock appears to have passed, our call of the day, from Miller Tabak + Co.’s lead strategist Matt Maley, warns the stock market hasn’t finished selling off on news a trade deal could take much longer than expected.

“Therefore, we believe the stock market has to reprice itself to the new uncertainties that are involved. This should take more than just six days…and take the market down by more than the 4.5% decline we had seen by Monday night,” said Maley. (The S&P lost roughly that amount between a high of 2,945.83 reached April 30 and a close of 2,811 on Monday, May 13.)

He described the small bounce seen by stocks this week as a “normal technical bounce” for a market that got oversold, but cautions that too many people are starting to justify the gains by saying the market blew trade tensions out of proportion.

Maley thinks they are wrong and that investors shouldn’t keep chasing the stock market higher, but instead hold off and try to figure out how to take advantage of the decline he sees coming—7% to 10% from the April high.

Maley uses an example from recent history to explain why the market isn’t done selling. Last October, when Fed Chairman Jerome Powell shocked investors by saying interest rates were far from neutral, stocks had to reprice that shock and new reality, which resulted in a 20% selloff. He doesn’t think trade tensions will merit that big of a pullback, but it’s worth something.

“Since this is new-news and was totally unexpected by the markets, we need to see the markets reprice themselves to it…more than it has so far,” he said.

Read: ‘Godfather’ of chart analysis says don’t bet on stock-market records anytime soon

The market

The Dow

YMM9, -0.62%

S&P 500

ESM9, -0.64%

and Nasdaq

NQM9, -0.80%

futures are sagging, with trade tensions in the air. Stocks closed higher for a third-straight day on Thursday.

The dollar

DXY, +0.09%

is lower, except against the pound

GBPUSD, -0.3673%


on news fresh Brexit talks could be ready to break down. Crude


is climbing.

Europe stocks

SXXP, -0.70%

have pulled back, while Asian equities were mixed, with a gain for the Nikkei

NIK, +0.89%

but a 2.4% loss for the Shanghai Composite

SHCOMP, -2.48%


BTCUSD, -7.50%

 is dropping hard after a bit of a flash-crash late Thursday.

The buzz

As if investors don’t have enough to worry about, high-stakes Brexit talks between the U.K. government and the chief opposition party are reportedly nearing collapse, two weeks before another parliamentary vote on an EU withdrawal.

Shares of economic bellwether Deere

DE, +0.79%

 are down after the industrial equipment maker missed profit forecasts and provided a downbeat outlook.


PINS, +7.79%

 shares are down over 15% after investors got a shock from the social-discovery platforms first set of earnings since its IPO. For starters, losses were far worse than expected. Chinese search engine owner Baidu

BIDU, +0.79%

also spooked investors with results and its outlook.

Chip companies Nvidia

NVDA, +0.38%

 and Applied Materials

AMAT, +0.39%

beat watered down expectations, but Nvidia shares fell after the company came clean on the slowdown facing the industry. Opinion: Nvidia tells the truth, and tempers a potential rally for chip stocks

Luckin Coffee

LK, +0.00%

 will begin trading on the Nasdaq on Friday morning. The Chinese coffee shop chain reportedly boosted the number of shares it will offer, priced at $17 each. Read: Five things to know about Luckin. Also making its debut Friday, San Francisco software group Fastly

FSLY, +0.00%

FSLY, +0.00%

has priced shares at $16 each.

As for data, we’ll get the University of Michigan sentiment index and leading indicators after the market opens.

Read: Companies back bill targeting robocalls that consumer advocate says won’t stop calls

The chart


BTCUSD, -7.50%

 has dropped back below $8,000 in a selloff that has hit several cryptocurrencies from late Thursday into early Friday. That slide is highlighted in our chart of the day below:

The tweet


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