Wall Street Subdued As Trump-Kim Summit Statement Light On Details

If the devil is in the details, what’s in the lack of details?

On the surface, news from the historic summit between President Donald Trump and North Korean leader Kim Jong Un is fantastic, but a joint statement was light on details, seemingly leaving the market in wait-and-watch mode. Focus could change quickly as investors eye the Fed rate announcement tomorrow. Ahead of that announcement, scheduled for Wednesday, stock futures were near steady Tuesday.

In the statement, Trump and Kim said the two nations are committed to establishing new relations and “will join their efforts to build a lasting and stable peace regime on the Korean Peninsula.” During the summit, Kim reaffirmed a commitment to work toward a denuclearized Korean Peninsula and Trump committed to providing security guarantees to North Korea, the statement said.

On Monday, stocks inched higher as investors anticipated the meeting between Trump and Kim and seemed to shrug at trade issues between the U.S. and Canada that flared over the weekend.

Investors didn’t seem to care much that the Group of Seven summit resulted in Trump not endorsing the G7 communique that included a statement on striving to reduce tariff barriers. It’s possible that the market was already expecting a fair amount of combativeness at the meeting. It may also be that investors understand that issues surrounding trade with Canada and other countries are likely going to take some time to resolve.

Whatever the reason, investors didn’t appear too worried on Monday as they sold safe-haven Treasuries, pushing the yield higher. The market’s “fear gauge” rose some, but the Cboe Volatility Index (VIX) wasn’t too much above the relatively subdued level of 12.

Figure 1: Fear Index Subdued. After topping out at just under 19 two weeks ago, the Cboe Volatility Index (VIX) has drifted downward. It has stayed in the 12 range since late last week. Image source: Cboe Global Markets. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results. 

Food for Thought

On Wednesday, investors will get to chew on two bits of news related to inflation. There’s the widely anticipated Fed rate announcement and press conference in the afternoon. In the morning, consider checking out producer price index data. A consensus of economists polled by Briefing.com indicates economists are anticipating core PPI excluding food and energy for May to show a 0.2 percent rise, the same gain as the previous month. Such a reading could continue to show that producers are paying more for goods and services, but not at such a rate to be particularly troubling with regards to inflation. If the reading comes in as expected, it may not give investors much new to digest when thinking about the likelihood of a fourth Fed rate hike this year. But it might end up being comfort food that the Goldilocks not-too-hot, not-too-cold economy is continuing. However, unless the number is completely out of range one way or the other, the reaction might be muted as the Fed meeting and announcement is likely to overshadow the numbers.

Checking Up on Consumer Health

The health of consumer spending is always key for the U.S. economy given that personal consumption is the biggest component of the nation’s gross domestic product. Investors will see results of a checkup on consumer health on Thursday, with the release of retail sales numbers for May. Expectations are for decent growth in core retail sales of 0.4 percent in May, according to a consensus of economists polled by Briefing.com. That would be slightly more than the 0.3 percent growth reading from the previous month. If the figure comes in as expected, it may not move the market perceptibly. But over the longer run it could provide more evidence of economic health.

Airlines Flying High

Almost all the airline stocks in the industrials sector of the S&P 500 (SPX)  got a lift on Monday. United Continental Holdings Inc. UAL was one of the leaders, apparently helped by its May update where it said traffic for United Airlines grew faster than capacity. That’s on the heels of Southwest Airlines Co. LUV last week reporting growth in both traffic and capacity metrics. Southwest shares appeared to get help Monday from a bullish Barron’s article. Growth in airline traffic is obviously good for the carriers themselves, and it tends to point to a healthy U.S. consumer. One note of caution could be rising fuel prices, so you may want to factor the price of oil into your thoughts on investing in airlines. And of course airlines will have to be careful in their attempts to balance capacity with actual traffic.

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