US equities got smacked once again, down more than -6% on average for the not so merry month of May. The trade war with China continues to escalate and a short term pop fizzled on Friday after Trump announced tariffs on Mexico. This was a big surprise to the markets as the US had just recently signed a trade agreement with both Canada and Mexico. It is quite unusual to use an immigration issue to start a trade war and did not go over well.

This month, US equities suffered one of their worst Mays on record and it's something not to ignore. Russia continued to firm and moved back into a bull phase. The Chinese markets also held, closing up for the week. Our takeaway is this - the trade war on multiple fronts may not be a layup for the US and some are saying we might already be in, or are about to enter, that dreaded R word.

This week’s highlights are:

• Risk Gauges remain 100% negative and getting worse
• All Key Equity indexes got slammed yet again
• Gold (GLD) and Gold Miners (GDX) finally caught bids and returned to bullish phases
• US long bonds (TLT) roared, outperforming stocks by over 10% in May as flight to safety and risk off prevails
• Soft commodities have bottomed coming off 100-year lows
• Volume patterns continue to worsen with zero accumulation days over the past few weeks
• Safety plays such as utilities (XLU) and real estate (IYY) performed well
• Market Internals remain weak; the number of stocks trading below the 10 DMA is one bright spot indicating a potential bounce
• Emerging Markets improved versus Established Markets, being supported by stronger commodities
• Market Sentiment ($vix.x) seems to be consolidating at higher levels, indicating further volatility or a sell-off
• The Yield Curve inversion has gotten even more so

Keeping a close eye on key intermarket relationships is always a critical part of our process and it gave us an advance warning that something was not right. MarketGauge’s key ratios shifted to Risk Off in early May and into bonds. Find out more about our powerful macro model called AlphaRotation and how it outperformed the benchmark indexes by over 10% this month alone as it hit new all-time highs.

For a fun read please check out this article on Fox Business about Mish.