Market Direction Week of September 18, 2017©

Market Direction: BEARISH alert issued 8/10/2017

Stock on the Radar (STAR)© was launched 6/19/2017 Sunday evening. When there is a new stock recommendations for the week it is typically made available late Sunday, so investors can prepare to take a position when the market opens Monday for trading.

Last Week Review: U.S. stocks reached new highs and were up 1.6% on the week. The S&P 500 reached 2,500 while recording its largest weekly gain since January. These gains came along with news that congressional Republicans plan to release the outline of a tax reform plan later this month. The possibility of tax cuts or tax reform could improve prospects for growth in 2018 and beyond, supporting elevated stock market valuations. Also, bond prices fell on the week as the 10-year Treasury interest rate increased from 2.06% to 2.20%, its largest weekly increase since June.

Volatility:

The VIX has dropped roughly 20% from Friday’s 12.12 close which was primarily driven by continued strength in the equity markets. Although the SPX rallied to a fresh all-time high this week, the VIX remains well above its 52-week low of 8.84 which it hit back in late July. It appears that VIX traders feel that a 10.00 level is a more appropriate reflection of current market conditions, even in the face of continued political or geopolitical uncertainties (note: North Korea fired another ballistic missile over Japan this morning which didn’t seem to faze markets):

Investor sentiment remains positive, even in the face of heightened geopolitical risk. Earlier this morning, UN secretary-general Antonio Guterres condemned North Korea’s latest missile test and said that he will be discussing the situation with all concerned parties at next week’s United Nations General Assembly. This isn’t the first time we’ve seen saber-rattling out of North Korea, and additional threats from either side wouldn’t be a surprise, but the risk of military action shouldn’t be taken off the radar. Absent this potential risk, equity price action has been constructive and I feel that momentum will likely push the SPX above 2,500 next week.

How the market finished last week, the S&P 500 up 1.6%, the Nasdaq up 1.4%, and the Dow up 2.2%.

This Week: There will be multiple economic data points next week but all eyes will be on next week’s Fed’s FOMC meeting. While a rate hike isn’t expected, market participants will be monitoring the language coming out of the policy statement, especially given the recent jump in December’s rate hike probability. Aside from that, the crude inventories report has the potential to impact the energy sector, but likely won’t have a huge impact on the overall market.

The week kicks off with a speech from Mark Carney, who shocked markets last week with a move into hawkish territory from the Bank of England. 

UK data and the Bank of England are key events to watch out for, along with US CPI towards the end of the week.

Economic Calendar: Housing Market Index (9/18), FOMC Meeting (9/19), Import and Export Prices (9/19), FOMC Announcement (9/20), PMI Composite Flash (9/22)

 

Some of the major earnings announcements on deck: CPRT, ADBE, FDX, GIS, KMX.

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