Market Direction: BULLISH alert issued 1/10/2019
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Last Week Review: U.S. Stocks finished slightly higher for the week, in a narrow range, as the market consolidated recent gains. The end of February marked the best two-month start to the year for the S&P 500 since 1987, with the index up 11.5%1. The White House announced that it would delay the March 1 trade deadline for additional tariffs on Chinese goods as negotiations are progressing. Stocks didn't react much to the news as a delay was already priced in, with investors now focused on a trade agreement materializing. Michael Cohen's testimony and the U.S. North Korea summit in Vietnam generated a lot of headlines, but without any direct market implications. Lastly, on the economic front, fourth-quarter GDP came in slightly stronger than expected at 2.6%, and 2.9% for full-year 2018. With 2018 marking this expansion's best year of GDP growth, we expect modestly lower growth this year, but still view a recession in 2019 as unlikely.
This week in Brexit news: Prime Minister Theresa May held a Parliamentary vote to give members the opportunity to take the so-called no-deal Brexit off the table, potentially eliminating any chance that the worst possible outcome could be realized. EU leaders have thus far been unwilling to offer further concessions to the current plan, citing among other things, the UK’s own lack of unanimity about what it really wants in a Brexit plan. Time marches on with the 3/29 deadline a mere 4 weeks away.
As expected, on Sunday evening (2/24) President Trump said that he is extending the “tariff-truce” deadline with China which had been set for March 1. This pause will last at least until he has time to personally meet with President Xi, citing “substantial progress” in the latest round of negotiations. Trump and Xi are planning a meeting at Trump’s Mar-a-Lago resort at an undetermined date sometime in mid-March, where a new trade agreement is expected to be signed.
Separately, on Wednesday (2/27) & Thursday (2/28) President Trump was in Hanoi Vietnam meeting with North Korean President Kim Jong Un for the second time in the past 12 months. Trump said North Korea has “tremendous economic potential” and he vowed to help it be realized. The primary goal for the meeting was denuclearization of the Korean Peninsula, and while an agreement was drafted and a ceremonial luncheon was planned, the talks broke down and the meeting unexpected ended early. President Trump contends that Kim asked for all sanctions to be lifted in exchange for the dismantling of only the Yongbyon reactor facility. The U.S. wanted all other nuclear sites fully dismantled too, and only then would sanctions be lifted.
How the market finished last week, the S&P 500 up 0.4%, the Nasdaq up 0.9%, and the Dow flat 0.0%.
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This Week: Q4 earnings season is essentially over now. With 485 companies (97%) of the S&P 500 reporting so far.
Continued technical resistance and a lack of upside catalysts, at least in the early part of the week, point to another moderately lower start to next week
Last week I stated, “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”. Pending the outcome of today’s (3/1) session, this does appear to be the first negative week of 2019 and the VIX was +1.27 (+9.4%) at the close on 2/28.
Next week the economic calendar is lighter, and with the possible exception of the ISM Services report (because services represent about 87% of the economy) the first 4 days seem likely to simply drift a bit lower. Then on Friday, we get all of the reports on the February employment situation. I suspect the labor market will continue to show strength, and if so the market could get a lift by the end of the week; if the reports miss, expect some volatility instead.
For the markets abroad, the UK and China PMIs are the key events for the week in economic terms.
There are plenty more UK results to look out for, covering a wide variety of sectors, but insurers Admiral, Legal and General and Aviva are worth watching out for.
Economic Calendar: ISM Services Index (3/5), ADP Employment Report (3/6), International Trade (3/6), Productivity Cost (3/7), Employment Report (3/8)
Some of the major earnings announcements on deck: CTRP, TGT, ROST, DLTR, KR.
$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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