Market Direction Week of November 5, 2018©

Market Direction:BEARISH alert issued 10/11/2018 

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Last Week Review: Stocks finished higher on the week, helped by improved sentiment, positive earnings and signs of potential progress in China trade talks. The earnings season is winding down as nearly three-quarters of the S&P 500 has reported results. In aggregate, quarterly profits are currently set to grow at the best pace in eight years, and combined with the market decline, have resulted in lower valuations. On the trade front, there were conflicting headlines about the easing of trade tensions with China. Negotiations will be ongoing, with the next catalyst potentially being the G20 Leaders' Summit at the end of November. On Friday the strong jobs report confirmed the continued strength in the U.S. labor market, which should translate to continued support for consumer spending.

Overall, October was a tough month, with the S&P 500 declining the most since September of 2011. We think that the higher volatility that investors are experiencing recently is likely to persist. Higher volatility frequently happens in the later part of the economic and market cycle, and while unsettling, can create opportunities for long-term investors.

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from Goldman Sachs, JP Morgan Chase, Credit Suisse, Ford, Blackstone, BlackRock, Uber, and Virgin Group have all rescinded plans to attend a Saudi lead investment conference next week.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 up 2.4%, the Nasdaq up 2.6%, and the Dow up 2.4%.

This Week: While US earnings season continues, many of the big names are out of the way, and this week has few of the blockbusters of the past two weeks. However, UK earnings are plentiful, with supermarkets, retailers and various others filling the middle of the week.

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!

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. Yet with the exception of some housing market data, most of the domestic economic data remains quite strong and Q3 earnings season is starting out on a mostly positive note.

On the economic front, we have decisions from the Federal Reserve (Fed) and the Reserve Bank of Australia (RBA), plus UK gross domestic product (GDP) figures and the monthly services purchasing managers index (PMI). And then, of course, there are the US midterms, which could be crucial for market direction.

Economic Calendar: ISM Services (11/5), JOLTS (11/6), FOMC Rate Decision (11/8), PPI (11/9), Univ. of Michigan Consumer Sentiment (11/9)

Some of the major earnings announcements on deck: MAR, FANG, DIS, LLY, QCOM.

 

$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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