Stocks Fall Sharply on Trade War Concerns and United Health Group Earnings Miss; Bonds Rally Off Their Lows

Good morning,

The Dow (-2.7%), NASDAQ (-2.6%), and S&P 500 (-1.5%) were all down in the holiday-shortened week.  Conversely, taxable bonds (+0.9%) and tax-free municipal bonds (+1.1%) partially recovered some of their sharp losses in the prior week.  The 10-year Treasury yield fell 0.14% to end the week at 4.33%.

As we’ve seen over the past couple months, tariff news has been dominating the headlines and markets, dwarfing the actual economic news.  Tariff news was mixed last week, with reported progress on deals helping to bolster sentiment, but an ongoing trade war with China took a toll on tech stocks.  In economic news, retail sales were better than economists’ expectations in March, which appears to be because consumers were stocking up on goods in advance of potential tariffs raising prices on those goods.  Initial jobless claims (a forward-looking indicator) were lower than economists’ expectations, suggesting continued strength in the labor market and less concerns of employers laying off workers.

The Dow fell as a direct result of its largest component, United Health Group (UNH), which fell 22% on Thursday.  UNH reported first quarter earnings results that missed profit expectations, pointing to higher-than-expected medical costs for people enrolled in Medicare.  Similar companies also fell sharply, as investors expressed concern that this could be an industry-wide problem.  We are in the early stages of quarterly corporate earnings season, but those earnings reports seem to be muted by all the tariffs and rumors coming from Washington.  We can expect above average volatility to continue so long as the tariffs and trade war with China dominate the headlines.  Until then, we sit on the fulcrum of the markets moving either upward or downward sharply, based on what actually occurs.  Don’t blink!

Have a great day and terrific week!

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