Market Direction: BULLISH alert issued 1/10/2019
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Last Week Review: U.S. stocks finished flat, digesting January's gains, while international stocks underperformed on worries of a European slowdown. The European Commission cut its forecasts for Eurozone economic growth to 1.3% from 1.9% in 2019 amid trade tensions and domestic challenges. While not surprising, the downgraded outlook confirms the soft patch in the region's economy. News that President Trump will not be meeting with China’s President Xi before the March 1 deadline, when another round of tariff increases is scheduled, unnerved markets, but the negotiations are still ongoing, and both sides seem willing to reach a trade deal. As a result of the revived global growth concerns, the U.S. dollar rose and crude oil fell. On the corporate front, with two-thirds of the S&P 500 companies having already reported earnings, approximately 72% of them have beaten earnings per share expectations, which is better than feared and in line with the historical averages. We continue to expect elevated volatility stemming from trade negotiations and global concerns, but we believe lower valuations and slowing but still-solid economic fundamentals can support rising stock prices.
This week in Brexit news: UK Prime Minister Theresa May traveled to Brussels on Thursday (2/7) in an attempt to restart stalled Brexit talks. But even before she arrived, EU President Donald Tusk insulted UK parliament members who promised their constituents an easy road to sovereignty, saying they have no plan. While PM May works tirelessly on a seemingly impossible task, worries continue to rise as the 3/29 deadline is a mere 7 weeks away. While some experts say neither the EU nor the UK want a “no-deal” Brexit to occur, clearly the UK has the most to lose under that scenario.
Trade officials from the U.S. and China are reportedly arranging another round of discussions next week in China, still working to avert an increase in tariffs on $200B worth of Chinese imports which is scheduled to take effect on March 2. This meeting is expected to lay the groundwork for a new meeting being scheduled between President Trump and Chinese President Xi in Vietnam in late February. But if that meeting is delayed, as rumors on Thursday (2/7) implied, the current “cease-fire” on tariffs will likely be extended, as few forecasters expect tariffs to be increase given the very negative impact it would likely have on the economy.
How the market finished last week, the S&P 500 flat 0.0%, the Nasdaq up 0.5%, and the Dow up 0.2%.
This Week: The potential for positive earnings and economic data will likely be more than offset by technical resistance, concerns about a government shutdown, the elusive trade deal with China and festering Brexit concerns.
The SPX was virtually unchanged through Thursday (2/7), and basically flat Friday, and the VIX modestly higher for the 3rd day in a row, the indicators appear to have gotten it right again.
Next week brings a heavier economic calendar and fewer earnings reports, but probably also no solution to Brexit, no new trade agreement with China, and on Friday the potential for another government shutdown. It looks like the SPX could be hitting some upside resistance this week, all of the indicators suggest a slight stock market decline.
Key events happening internationally, Chinese and UK consumer price index (CPI), China’s trade balance and Germany's gross domestic product (GDP).
Thursday expected to see another attempt by UK Prime Minister Theresa May to get the Brexit Withdrawal Agreement through Parliament.
Economic Calendar: JOLTS (2/12), CPI Index (2/13), PPI Index (2/13), International Trade (2/15), Retail Sales (2/15)
Some of the major earnings announcements on deck: PEP, KO, NVDA, QLYS, DE.
$tockMarketDirection proprietary model is currently BULLISH. 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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