With the benefit of hindsight, the old adage about selling in May and going away proved to be good advice this year. As has been the case for much of this month, trade wars sank stocks on Friday as the Nasdaq Composite and the S&P 500 slipped by 1.5% and 1.3% while the Dow Jones Industrial Average dropped 1.4% today.
Chinese retaliatory tariffs on over 5,100 U.S.-made products go into effect June 1. Beijing boosted tariffs on the U.S. imports to 20% to 25% from a previous range of 5% to 10%. However, those were not the tariffs that really roiled markets on Friday.
The White House announced tariffs on Mexican imports to the U.S., slated to start at 5% on June 10 and rising to 25% until Mexico steps up to help the U.S. with the illegal immigration issue.
“Washington will impose a 5% tariff from June 10, which would then rise steadily to 25% until illegal immigration across the southern border was stopped, President Donald Trump tweeted late on Thursday,” reports Reuters.
A Sea Of Red in the Markets
At the close on Friday, all of the members of the Dow Jones Industrial Average were trading lower, making it easy to find offenders for May’s final trading session. While some Dow Jones components were bigger losers on the day, Exxon Mobil (NYSEARCA:XOM) and Chevron (NYSE:CVX) each lost more than 1% as oil prices dropped.
Adding to the woes for the two largest U.S. oil companies are the aforementioned Mexico tariffs. Tariffs on Mexican oil could be a negative for U.S. refiners. As integrated oil giants, Exxon and Chevron have major refining operations.
“Mexico sends 600K-700K bbl/day of oil to the U.S., mostly to refiners that process the crude into gasoline, diesel and other products, while Mexico buys more than 1M bbl/day of U.S. crude and fuel, more than any other country,” according to Seeking Alpha.
As was noted here yesterday, Verizon Communications (NYSE:VZ) was slammed Thursday after UBS lowered its rating on the stock to “neutral” from “buy.” That now looks like a prescient call because shares of Verizon and rival AT&T (NYSE:T) were drubbed Friday on reports that Amazon (NASDAQ:AMZN) could be looking to enter the wireless telecommunications business.
Another potential area of concern amid the Mexico tariffs is medical device makers. While no Dow component is a dedicated medical device manufacturer, Johnson & Johnson (NYSE:JNJ) has a big footprint in this space.
Bottom Line on the Dow Jones Today
The Dow Jones Industrial Average lost more than 5% this month, so the bottom line is May was a brutal month and investors are right to be glad it is in the books. However, if seasonal trends hold true to form, there could be June gloom.
Over the past 20 years, the S&P 500 has averaged a June decline of 0.7%, making the sixth month of the year the second-worst month in which to be long stocks.
In terms of sectors that historically perform well in June, it is, not surprisingly, defensive fare. Utilities and healthcare are usually the best-performing groups in the S&P 500 in June. Those are the only two sectors that average positive returns in the sixth month of the year.
As of this writing, Todd Shriber does not own any of the aforementioned securities.