Market Direction Week of October 22, 2018©

Market Direction:BEARISH alert issued 10/11/2018 

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Last Week Review: After three consecutive weeks of declines, stocks finished mixed this week. As the third-quarter earnings season picks up steam, the focus is shifting to corporate fundamentals. With the exception of a few negative surprises in the industrial space and with European luxury goods manufacturers, early indications point to strong sales and earnings growth in aggregate. Increased volatility was still prevalent this week as investors remained cautious, with the S&P 500 moving more than 1% in two out of the five trading sessions. Global growth concerns, along with worries about rising interest rates, were once again the main sources of volatility. The Leading Economic Index, reported on Thursday, rose 0.5% in September, signaling a solid outlook for economic growth over the next six months. Markets are frequently choppy short term, but the positive fundamentals of economic and earnings growth can keep supporting rising stock prices over time. We don't think this ongoing volatility signals the end of the bull market, but a return to volatility is typical later in the market cycle.

In the latest developments of the ongoing Brexit saga, Prime Minister Theresa May this week has made little progress in negotiating with her European Union counterparts. With the March 31, 2019 separation date approaching quickly, one idea being floated is of extending the 21-month grace period for ending the customs union; essentially the status quo.

Despite previous threats to the contrary, this week the US Treasury decided not to officially declare China a currency manipulator. While the US said it will continue to keep a close watch on exchange rates and Chinese monetary policy, this decision is one of the few made recently that actually de-escalates existing trade/tariff tensions with our largest trading partner.

This week, in response to the still unsolved mystery of the disappearance of Washington Post journalist Jamal Khashoggi, numerous participants including Treasury Secretary Steven Mnuchin, as well as executives from Goldman Sachs, JP Morgan Chase, Credit Suisse, Ford, Blackstone, BlackRock, Uber, and Virgin Group have all rescinded plans to attend a Saudi lead investment conference next week.

How the market finished last week, the S&P 500 flat 0.0%, the Nasdaq down 0.6%, and the Dow up 0.4%.

This Week: Q3 earnings season is starting to really ramp up this week. With 85 companies (17%) of the S&P 500 reporting numbers.

Friday (10/19) was the 31st anniversary of “Black Monday”; so called because it was the largest single-day market drop in history. Just to put things into perspective; on that day (October 19, 1987) the SPX dropped 57.86 points, which was -20.47%. With the SPX at a significantly higher level now, the equivalent decline today would be a drop of more than 566 points!

Driven by geopolitical tensions with Saudi Arabia, ongoing trade tensions with China and the upcoming midterm elections, volatility remains elevated since it spiked during last week’s market pullback. Despite fairly strong Q3 earnings results thus far, traders should expect relatively higher levels of volatility to remain at least until the November 6 midterm elections have concluded.

After nearly 6 months of calm markets, volatility has returned, driven by trade issues, geopolitical concerns, higher interest rates and weakening economies in Europe and Asia.

Economic Calendar: Durable New Homes Sales (10/24), Goods Orders (10/25), GDP (10/26), University of Michigan Consumer Sentiment (10/26)

Some of the major earnings announcements on deck: CAT, MCD, BA, GOOGL, MSFT. 

$tockMarketDirection proprietary model is currently BEARISH. We strongly encourage you to monitor positions closely, exercise proper money management strategies and follow us at $tockMarketDirection for ALERTS we may issue advising a change in the current market direction. Stay tuned and follow us. If you have a testimonial or comment of how this website has helped you we would like to know, email us. Share with a friend. Cha-ching.

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