Tariff Tensions Take Toll, Crude Pops, Micron and AMD Rise

You guys take Monday off? It sure felt that there were a lot of folks missing on the first trading day of June. I guess, to some degree, that makes sense, though May did not exactly go out on huge trading volume. Domestic equity markets opened on weakness on Monday morning in response to escalating trade tension between Washington and Beijing, as the world's two largest economies accused each other of violating their recent trade truce. Trade tensions ramped higher between Washington and Brussels as well as Pres. Trump had told steelworkers on Friday night that tariffs on imported steel would double.

The weakness did not last all day, however, despite some profit taking across Treasury debt markets after last week's strong run. White House Press Secretary Karoline Leavitt told reporters, "The two leaders will likely talk this week" in response to a question asking whether Presidents Trump and Xi were in contact. This put a bid under the stock market that allowed both the S&P 500 and the Nasdaq Composite to close near the highs of the regular trading session after having bottomed for the day almost six hours earlier.

Breadth Was Meh

There was definitely some interest in energy and tech on Monday. Crude oil prices popped as the Ukrainian military pulled off an incredible operation that seriously diminished the combat effectiveness and ability to deliver strategic payloads of the Russian Air Force. The Philadelphia Semiconductor index gained 1.57% led by Micron MU and Advanced Micro Devices AMD, while the Dow Jones US Exploration & Production Index gained 1.38% led by Coterra CTRA and Devon DVN.

This had the Nasdaq Composite up 0.67% and the S&P 500 up 0,41% for the day as small to midcap indexes all lost ground. Ten of the 11 S&P sector SPDR ETFs shaded into the green on Monday, as the already mentioned Energy XLE and Technology XLK funds gained 1.31% and 0.88% respectively. The Industrials XLI were the only fund among the eleven to close in the red as the rails were weighed down by a downgrade across the entire industry by Goldman Sachs GS.

Here's where we end up taking what happened on Monday less seriously. I mean traders were made and prices paid will stand, but nothing changed technically. Winners beat losers at the NYSE by less than a 5-to-4 margin and by just 10 to 9 at the Nasdaq. Advancing volume took a 57% share of composite Nasdaq-listed trade and a 52.7% share of composite NYSE-listed activity.

That's all well and good but check this out: Aggregate trade on a day-over-day basis was down 24.2% across NYSE-listed securities, and down 14% across Nasdaq-listed securities. Additionally, aggregate trade across the membership of the S&P 500 fell 14% short of its own 50-day trading volume simple moving average. In fact, Monday was the quietest day across the S&P 500 in almost four weeks.

Foreboding ISM Numbers ...

On Monday, the Institute for Supply Management published its May survey of manufacturing sector purchasing managers and it wasn't pretty. The headline print landed at 48.5, which was a third consecutive month in contraction, as the all-important print for New Orders hit the tape at 47.6, which was a fourth consecutive month in contraction.

Order backlogs and production continue to ebb as well as whatever pull-forward there might have been related to the front-running of Pres. Trump's tariffs now appears to have run its course. On that note, inventories moved from a state of expansion deeply into contractionary territory. Elsewhere in the report, employment remained weak, while pricing remained red hot.

Good News for Semis

According to World Semiconductor Trade Statistics or WSTS, the global market for semiconductors is expected to grow 11.2% in 2025 to $700.9 billion. The continued expansion is expected to be driven by memory and logic, while generative AI and the cloud at least sustain levels of demand experienced in 2024. Regionally, North America and the Asia Pacific regions are expected to lead the planet in demand with expected growth rates of 18% and 9.8% respectively.

Deceleration

The Organization for Economic Cooperation and Development is apparently not a fan of Pres. Trump's trade policies. The OECD cut its projection for U.S. gross domestic product growth in 2025 to just 1.6%, down from a projection for growth of 2.2% as recently as this past March. The organization also cut its projection for global GDP growth for 2025 to 2.9% from 3.1% in March. The OECD also increased its projection for U.S. inflation in 2025 to 3.2% from 2.8%. The good news within? The organization, in making these projections, assumes that tariff rates in mid-May will be sustained indefinitely. On that note, we all know that in these times, and with this administration, all conditions are fluid.

Threat to the Market?

The "big, beautiful bill" may sink the market or not. Pass the bill and take on increased deficit spending. Markets might not like that. Don't pass the bill? Markets really, really won't like that. What to do? On Monday, Congress returned from their Memorial Day recess. I know, you had a three-day weekend, while they took a week and a half. It's a great job, if you can get there.

Senate Republicans look to put their mark on the bill that will extend the 2017 Trump tax cuts, add new tax cuts for overtime and tips and cut spending on programs where there is believed to be fraud and abuse such as Medicaid. The House of Representatives passed the bill by one vote in May, which is projected to add as much as $4 trillion to the federal debt over 10 years.

In all fairness to the bill, when the Congressional Budget Office made that projection, it included no revenue from tariffs as an offset, which is ridiculous. Treasury Sec. Scott Bessent has said that he expects tariffs to raise an approximate $2 trillion over 10 years in revenue, while the University of Penn Wharton model projects $3.4 trillion in revenue over 10 years. Yale's Budget Lab is projecting $3.4 trillion. While those numbers soften the blow, the bill still expands the deficit.

Will there be news this week? Likely not. There are a number of fiscal hawks among the slim Republican majority in the Senate and the bill will change before it can pass. The goal appears to be to pass a new version of the bill by July 4 and send that version back to the House. Once both chambers of our legislature agree on what they can pass, only then will the bill head to the president's desk to be signed into law.

Microsoft, CrowdStrike ... Interesting...

News broke on Monday that Microsoft MSFT and CrowdStrike CRWD are working together to bring coordination to how cyber threat actors are identified and tracked across cybersecurity services providers. The two companies have apparently developed a mapping system to be shared that links adversary identifiers across vendor ecosystems without dating a single naming standard.

The two companies claim to have already deconflicted over 80 adversaries and have validated Volt Typhoon and Vanguard Panda as Chinese state-sponsored actors and Secret Blizzard and venomous Bear as Russian in origin. 

Of Course

Equity index futures have traded lower through the zero-dark hours this morning. One constructive post on Truth Social mentioning Pres. Xi of China and that all changes. Then again, a less than constructive post could be seen as sub-optimal by the keyword reading algorithms that choose our fate on a daily basis.

Economics (All Times East)

08:55 - Redbook (Weekly): Last 6.1% y/y.

10:00 - Factory Orders (Apr): Expecting -3.1% m/m, Last 3.4% m/m.

10:00 - JOLTs Job Openings (Apr): Last 7.192M.

10:00 - JOLTs Job Quits (Apr): Last 3.332M.

4:30 p.m. - API Oil Inventories (Weekly): Last -4.236M.

The Fed (All Times Eastern)

12:45 p.m. - Speaker: Chicago Fed Pres. Austan Goolsbee. 

3:30 - Speaker: Dallas Fed Pres. Lorie Logan.

Today's Earnings Highlights (Consensus EPS Expectations)

Before the Open: DG (1.49), OLLI (.71), SIG (1.04)

After the Close: CRWD (.66), HPE (.33)

At the time of publication, Guilfoyle was long CRWD, AMD, MSFT equity.