Tuesday's Market Minute: What To Watch For Today

A U.S./Mexico tariff deal and last week’s dovish comments from the Fed carried the SPX to its best week in 2019, while also providing some relief to investors’ trade concerns. Despite the rally, market anomalies remain.

First, U.S./China trade tensions remain heightened, and if the situation is not resolved the effects on supply chains and tech companies could curb the recent rally. As an illustration, over 20% of S&P 500 revenue is derived from the tech sector. Out of the 20 companies considered to be tech suppliers, 15 have China as their top geographical revenue exposure. Given the interconnectedness in global supply chains, any further escalation could cause the rally to quickly deteriorate.

The second anomaly worth noting is the “sentiment” surrounding the Fed rate cut. Markets rallied despite weaker-than-expected economic data as the probability of a Fed rate cut boosted stocks. As many have noted, the current focus on a 75-100 basis point “insurance” cut despite significant economic slowdown could cause market volatility going forward. Furthermore, this narrative surrounding the Fed also calls into question the direction of monetary policy moving forward, and whether the forces driving economic growth really have to do with financial conditions or structural issues in general.

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