Market Direction Weekly Closing Numbers©

Market Direction: BEARISH alert issued 8/10/2017

The economy

No news proved to be good news for the bulls this week, giving them an opportunity to reclaim control of the U.S. equity market, which rode a two-week slide into Monday's session. The S&P 500 and the Dow finished with gains of 0.7% apiece while the Nasdaq (+0.8%) finished a tick above its peers.

Ten sectors settled the week in the green--real estate (+2.3%), telecom services (+2.0%), materials (+1.3%), health care (+1.1%), technology (+1.0%), utilities (+1.0%), energy (+1.0%), financials (+0.8%), consumer discretionary (+0.4%), and industrials (+0.4%)--while one group finished in the red--consumer staples (-1.0%).

The week's most notable headlines in chronological order:

• Monday--S&P 500 +0.1%, Nasdaq -0.1%, Dow +0.1%
  • U.S. and South Korea forces begin their annual military exercise; North Korea says the exercise will only add fuel to the fire
• Tuesday--S&P 500 +1.0%, Nasdaq +1.4%, Dow +0.9%
  • Politico reports that White House and Congressional leaders have worked together to make significant strides in framing a tax-reform proposal
• Wednesday--S&P 500 -0.4%, Nasdaq -0.3%, Dow -0.4%
  • President Trump threatens a government shutdown if his promised barrier along the U.S.-Mexico border doesn't secure funding
    • This event happened on Tuesday night, but the market reacted on Wednesday
• Thursday--S&P 500 -0.2%, Nasdaq -0.1%, Dow -0.1%
  • Grocers take a beating following news that Amazon's (AMZN) acquisition of Whole Foods Market (WFM) will close on August 28
• Friday--S&P 500 +0.2%, Nasdaq -0.1%, Dow +0.2%
  • Fed Chair Janet Yellen says any changes to financial regulations should be modest and she is open to reviewing the Volcker Rule.
  • ECB President Mario Draghi speaks in favor of open trade and argues for raising potential output growth

One of the most talked about news items this week was the possibility of a government shutdown. Without going into the political details, the gist for the market is simple; the probability of a government shutdown appears to be higher now than it was a week ago.

A shutdown may stifle economic growth a bit, but the market has traditionally held up pretty well during halts in government spending. To avoid a shutdown, Congress will need to pass a new spending bill, and President Trump will have to sign it, by the end of September.

Following this week's events, the fed funds futures market now points to the June 2018 FOMC meeting as the most likely time for the next rate-hike announcement with an implied probability of 58.0%. Last week, the market expected the next rate hike to occur in March 2018 with an implied probability of 51.5%.

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By the numbers the weekly closing index numbers compared to the initial BEARISH recommendation closing numbers: 

Stock Market Closing Numbers
compared to Recommendation Numbers
	8/10/2017	8/25/2017	Difference
Dow Jones	21,844.01	21,813.67	30.34
Nasdaq	6,216.87	6,265.64	48.77
S&P 500	2,438.21	2,443.05	4.84

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