US stocks begin lower; Financials weighing

Summary:

• US500 falls to lowest level in a fortnight (<2800)

• Mueller finds no Trump-Russia collusion

• Financial shares back under pressure  

A negative Asian session saw US futures take out Friday’s low and in doing so the S&P500 traded back down below 2800 to hit its lowest level in a fortnight. On Sunday night’s open there was actually a gap higher seen after the Mueller probe concluded that Donald Trump and his presidential campaign did not collude with Russia in an attempt to influence the 2016 election result. Following a 22-month investigation the news comes as a blow to Democrats who had steadfastly insisted there was wrongdoing, and the chances of Trump now being impeached seem to be slim to none - the odds on him winning the 2020 election also shortened after the news broke.

The price action for the S&P lately has been choppy to say the least with Thursday seeing a bullish engulfing candle after price had sold-off following the Fed before Friday delivered a large bearish engulfing to end the week on the low. The market is now back below the 2824 breakout level and also beneath the 10 period EMA - a rare occurrence in recent months. Source: xStation

For the here and now this isn’t a big market mover and while it has taken one source of risk off the table, it doesn’t seem that many were overly concerned that an impeachment was probable and therefore is unlikely to have a lasting impact. The greater concern at present appears to be global growth and the inverted yield curve following Germany’s disastrous manufacturing print on Friday, and you can read more on the possible implications for that here.   

Looking at individual sectors financials have been a laggard of late, and they reacted especially badly to the dovish Fed. This is not too surprising as higher rates are seen as a good thing for banks as it increases their margins, but the XLF financial ETF (XLF.US on xStation) tumbled nearly 5% last week. This comes after the market had rallied 15% since bottoming in December, with individual components performing even better - for instance Citigroup added 26%, American express 23% and Bank of America 19%. In addition to a dovish Fed, the reasons behind the move are also negative for financials, as they perform better in stronger economies. If growth is slowing then there’s a fair chance loan growth will also slow and this directly impacts banks businesses.   

The XLF.US has fallen fairly sharply in recent trade and the financial ETF has opened up a notable divergence with the broader S&P500. Source: xStation