Market Direction: BULLISH alert
issued 2/15/2018
The economy The stock market stumbled this week, giving back about a quarter of last week's advance, with the S&P 500, the Nasdaq, and the Dow losing between 0.5% and 0.7%. However, shares of smaller, domestically-focused companies outperformed, sending the Russell 2000 higher by 1.2%. The Russell 2000 closed at a new record high in each of the last three sessions of the week.
Beijing sent a delegation to Washington this week for a second round of trade talks after the first round failed to move the needle earlier this month. There was some optimism ahead of this week's negotiations after President Trump announced over the weekend that he's working to get Chinese phone company ZTE, which is suffering due to U.S. sanctions, "back into business." However, the optimism faded after the president acknowledged on Thursday that he's doubtful a deal can be reached.
In other international developments, Italy's major stock index tumbled 2.9% this week and its 10-yr yield shot higher by 35 basis points as two anti-establishment parties, the 5 Star Movement and the League, neared forming a governing coalition that will almost certainly clash with the European Union. Separately, U.S. officials said the U.S., Canada, and Mexico are still nowhere near a deal on NAFTA.
On Wall Street, Treasury yields were in focus after they spiked to multi-year highs on Tuesday. The yield on the benchmark 10-yr Treasury note hit 3.11%, its highest level since July 2011, before slipping to 3.07% on Friday. Still, that represents a gain of 10 basis points for the week. The rise in "risk free" returns lured some buyers away from the equity market, putting Wall Street's May rally on hold.
Tuesday's spike in Treasury yields coincided with the release of the Retail Sales report for April, even though the report came in as expected, showing a month-over-month increase of 0.3%.
On a related note, retailers dominated the earnings front this week, with Walmart (WMT), Home Depot (HD), Macy's (M), Nordstrom (JWN), and J.C. Penney (JCP) reporting their quarterly results. All five companies beat earnings estimates, but Walmart, Home Depot, Nordstrom, and J.C. Penney fell short on same-store sales, sending their shares lower. Shares of Macy's, conversely, soared after the company beat same-store sales estimates and raised its guidance for the fiscal year.
Apart from earnings, shares of CBS (CBS) dropped sharply on Thursday after a judge ruled against the company in its attempt to dilute its controlling shareholder, Shari Redstone, who is attempting to force a CBS-Viacom (VIAB) merger. The Redstone family controls both CBS and Viacom through its holding company, National Amusements.
As for the sector standings, decliners outnumbered advancers seven to four this week. The rate-sensitive utilities (-3.2%) and real estate (-3.2%) sectors were the worst-performing groups, largely due to the rise in Treasury yields. The heavily-weighted technology (-1.5%) and financials (-1.1%) spaces also struggled. On the upside, the energy (+1.5%) and materials (+1.6%) sectors were the top performers.
Following this week's decline, the S&P 500 and the Nasdaq are up 1.5% and 6.5% for the year, respectively, and the Dow is now flat.
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By the numbers the weekly closing index numbers compared to the initial BULLISH recommendation closing numbers:
Stock Market Closing Numbers
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compared to Recommendation Numbers
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2/15/2018
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5/18/2018
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Difference
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25,200.37
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24,715.09
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485.28
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7,256.43
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7,354.34
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97.91
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2,731.20
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2,712.97
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18.23
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