Market Direction: BULLISH alert issued 1/10/2019
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Last Week Review: U.S. equities finished higher for the fourth straight week, with emerging markets outperforming. Downside volatility remains subdued as the S&P 500 hasn't experienced a decline of 1% or more for the last 20 trading days1. Since the December bottom, we think the key factors supporting stocks continue to be 1) signs of a positive trade resolution with China, 2) the Fed's pause and its willingness to be patient while assessing economic conditions before hiking rates, and 3) a better-than-feared fourth-quarter earnings season. Both upside and downside volatility will likely increase as the year progresses, in our view.
The U.S. stock market is up more than 18% over the past two months.1 Annualizing that performance would produce a market return of 190% for the year. It goes without saying that the market won't maintain that pace, highlighting the remarkable strength of the recent rally.
This week in Brexit news: Prime Minister Theresa May was in Brussels still trying to negotiate a better exit deal, despite European Commission President Jean-Claude Juncker’s assertion that further negotiations are a waste of time. Key among the issues still being discussed is the new border with Ireland. Time is running out with the 3/29 deadline a mere 5 weeks away and the number of companies that have threatened to shut down UK operations is growing rapidly. Motor vehicle production, for example, is a major industry in the UK with over 180,000 employees.
President Trump indicates that he is still considering an extension of the “tariff-truce” deadline set for March 1. Mid-level and cabinet-level negotiations are going on this week, and as long as progress is being made, President Trump seems willing to maintain the current pause until he and President Xi can meet in a few weeks. I say “apparently”, because as is so often the case, Trump added his usual, “We’ll see what happens” to keep the suspense alive.
How the market finished last week, the S&P 500 up 0.6%, the Nasdaq up 0.7%, and the Dow up 0.6%.
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This Week: Q4 earnings season is nearly over now. With 445 companies (89%) of the S&P 500 reporting so far.
A heavy economic calendar, technical resistance and festering geopolitical issues setup a potentially lower and more volatile week ahead; possibly the first negative week of the year.
Next week there will be far fewer earnings announcements but the economic calendar is much busier, including a few potentially market-moving reports such as: January Durable Goods, the first look at Q4 GDP, and February ISM Manufacturing. Additionally, the deadline on the tariff truce with China occurs on Friday (3/1), and while I fully expect this to be extended, the markets probably do too, so it may be enough to offset the other catalysts. It could be a “buy-the-rumor; sell-the-news” event.
It is an action-packed week for UK company earnings, with a host of names from across the FTSE 350 reporting numbers, covering a wide variety of sectors.
Key economic news aboard is China purchasing managers indices (PMIs) and the UK manufacturing PMI, while new votes on the UK’s Withdrawal Agreement and Italy’s budget are also expected.
Economic Calendar: Wholesale Inventories (2/25), Durable Goods Orders (2/27), Factory Orders (2/27), GDP (2/28), ISM Manufacturing Index (3/31)
Some of the major earnings announcements on deck: AZO, VEEV, HD, TJX, VMW, SQ.
$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. Building a community of investors one trade at a time. Share with a friend. Cha-ching!
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