Market Direction: BULLISH alert
issued 2/15/2018
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Tariff Alert...
The
S&P 500 index and the Dow Jones Industrial Average closed lower Wednesday
as the resignation of top White House economic adviser Gary Cohn stoked fears
of a trade war but the tech-laden Nasdaq bucked the trend to extend its winning
streak to a fourth session.
Concerns
about the prospect of a global trade war, prompted by Trump’s plan to introduce
tariffs on steel and aluminum imports, intensified as Cohn had opposed the
tariff proposal and was widely viewed as having a moderating influence within
the White House.
Still,
some of the selling pressure eased following the release of the Federal
Reserve’s beige book, which emphasized modest economic growth and moderate
inflation, helping the indexes to bounce off intraday lows.
How did the main benchmarks fare?
The
Dow Jones Industrial Average DJIA, -0.33% slid 82.76 points, or 0.3%, to
24,801.36. Earlier, the blue-chip gauge was off more than 300 points.
The
S&P 500 SPX, -0.05% shed 1.32 points to 2,726.80. Energy
stocks were big losers as crude oil futures CLJ8, +0.28% sank nearly 2% on worries
about mounting trade friction.
The
Nasdaq Composite Index COMP, +0.33% rose 24.64 points, or 0.3%, to
7,396.65.
Small-capitalization stocks defied the general weak
trend with the Russell 2000 RUT, +0.79% up 12.33 points, or 0.8%, to
1,574.53. Small-caps have relatively less exposure to international trade than their large cap peers.
What drove the markets?
Investors
were nervous, fleeing assets perceived as more risky
after the news of Cohn’s resignation. He is regarded as the chief architect of
Wall Street-friendly corporate tax cuts signed into law last year, and he was seen
as a level head in an administration that has seen tumult.
His
decision to leave the role as the president’s top economic adviser adds to
fears that Trump is adopting an increasingly protectionist stance and could
spark a global trade war. That type of conflict could threaten the U.S.
economic growth and corporate earnings.
The European Union said Wednesday it is
discussing which American products it would hit with tariffs if Trump moves
ahead with his plan. In addition, the Trump administration is reportedly
considering a broad range of import tariffs on Chinese goods.
“Prices
increased in all districts…[and] most districts saw employers raise wages and
expand benefit packages in response to tight labor market conditions,”
according to the beige book. However, overall wage and price growth were viewed as “moderate,”
suggesting that the Fed has some breathing room before turning more hawkish.
The recent pick up in prices have triggered concerns that the central bank
could hike rates four times this year versus three as previously telegraphed.
What were strategists saying?
“It
is not so much the resignation, but the role that Cohn has played in the
administration. He was seen as the voice of economic stability and a
spokesperson for financial markets,” said Brad McMillan, chief investment
officer for Commonwealth Financial Network, in a note to investors.
“His
resignation leaves the president with a set of economic advisers largely seen
as outside of the mainstream, or at least perceived as less aligned with Wall
Street interests. At a minimum, this introduces more uncertainty into economic
policy and raises the chance of policy actions such as tariffs.”
“The
market is waiting for more details about the tariffs, but the more specifics we
get the more chances that trading partners will come with retaliatory
response,” said Quincy Krosby, chief market strategist, at Prudential
Financial.
“In
the absence corporate earnings news, and with weeks before the next Fed
meeting, markets have more time to react to headline news from Washington. We
expect market reaction to news who will replace Cohn,” Krosby said.
Much
will depend on who Trump chooses to replace Cohn and if his successor is deemed
to be in favor of free trade like Cohn, then that can be viewed as a
market-friendly outcome, said Fawad Razaqzada, a Forex.com analyst. However, if
the new person is a trade hawk, then it could fuel further uncertainties in the
market.
What was on the economic docket?
A
hefty lineup of releases kicked off with the ADP employment report for
February.
Private-sector employers added 235,000 jobs in
February, while the initial January gain of 234,000 was raised by 10,000 in the
latest data. February is the fourth month in a row where job gains were 200,000
or higher.
The U.S. trade deficit climbed 5% in January and
hit a nearly 10-year high, continuing a steady rise since President Trump took
over that could exacerbate already tense disputes between the administration
and key trading partners.
Updated
numbers show that the fourth-quarter productivity was flat and unit labor costs
were raised to 2.5% from 2%.
Check
out: MarketWatch’s Economic Calendar
How did other markets perform?
European stocks SXXP, +0.36% mostly gained and Asian markets closed lower across the board.
The
ICE U.S. Dollar Index DXY, +0.00% was flat and gold futures settled weaker.
The all-time highs since our initial
recommendation to go LONG
this market. Here is how the markets have performed:
Stock Market
Direction Recommendation (2/15/2018)
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Dow
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up 599.98 points a 2.38% gain
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2/27/18
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Nasdaq
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up 181.66 points a 2.50% gain
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2/27/18
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S&P 500
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up 57.95 points a 2.12% gain
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2/27/18
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Related Link: http://www.stockmarket-direction.com/
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