Market Direction: BEARISH alert issued 1/10/2019
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Market Direction Week Review:
Stocks finished the week lower on concerns that U.S. trade tensions with China will be prolonged, and economic reports suggested global growth is showing signs of slowing. Energy stocks led decliners on the heels of lower oil prices, while utilities led advancing sectors.
Separately, President Trump said he believes passage of the United States-Mexico-Canada Agreement (USMCA) (NAFTA replacement) is a higher priority than an infrastructure bill. Last week the President bowed to Republican concerns by lifting steel and aluminum tariffs in an effort to speed the approval process. However, Democrats have expressed continued concerns regarding labor enforcement and pharmaceutical provisions which have yet to be addressed.
This week in Brexit news, British Prime Minister Theresa May made one final attempt to gain approval for her Brexit deal, but was instead rebuked for a third time. Then after being asked again to resign, finally succumbed. May had long vowed to establish a timetable for her successor after Brexit was complete, but instead will pass the process to her successor. Due to the number of delays in the process, the UK must now participate in the European elections she had sought to avoid. May said she will resign as Conservative party leader on June 7, and only remain Prime Minister until her successor is in place.
Adding to the uncertainty already created by the tariff increase to 25% on $200B of Chinese imports 2 weeks ago, and China’s announced retaliatory tariff increase to 25% on $60B in US imports in response, this week the ongoing trade battle escalated further. President Trump’s announced a partial ban on the sale of US technology to Chinese telecom giant Huawei, is sparking widespread pushback from US technology companies. With anywhere from $14B - $56B in revenues at risk by some estimates, analysts have identified semiconductor companies such as Lumentum, Qorvo, Skyworks, Xilinx, Qualcomm, Analog Devices, Broadcom, Intel, Nvidia and others as potentially vulnerable to revenue declines if the ban remains in effect. These and other companies are using their collective clout to lobby the President on this issue, even as they begin to make precautionary changes to their supply chains and business models in response. Relief is unlikely to come until the G20 meeting in Osaka Japan on June 28-29, in which President Trump and Chinese President Xi are tentatively scheduled to meet.
How the market finished last week, the S&P 500 down 1.2%, the Nasdaq down 2.3%, and the Dow down 0.7%.
Stocks finished the week lower on concerns that U.S. trade tensions with China will be prolonged, and economic reports suggested global growth is showing signs of slowing. Energy stocks led decliners on the heels of lower oil prices, while utilities led advancing sectors.
Separately, President Trump said he believes passage of the United States-Mexico-Canada Agreement (USMCA) (NAFTA replacement) is a higher priority than an infrastructure bill. Last week the President bowed to Republican concerns by lifting steel and aluminum tariffs in an effort to speed the approval process. However, Democrats have expressed continued concerns regarding labor enforcement and pharmaceutical provisions which have yet to be addressed.
This week in Brexit news, British Prime Minister Theresa May made one final attempt to gain approval for her Brexit deal, but was instead rebuked for a third time. Then after being asked again to resign, finally succumbed. May had long vowed to establish a timetable for her successor after Brexit was complete, but instead will pass the process to her successor. Due to the number of delays in the process, the UK must now participate in the European elections she had sought to avoid. May said she will resign as Conservative party leader on June 7, and only remain Prime Minister until her successor is in place.
Adding to the uncertainty already created by the tariff increase to 25% on $200B of Chinese imports 2 weeks ago, and China’s announced retaliatory tariff increase to 25% on $60B in US imports in response, this week the ongoing trade battle escalated further. President Trump’s announced a partial ban on the sale of US technology to Chinese telecom giant Huawei, is sparking widespread pushback from US technology companies. With anywhere from $14B - $56B in revenues at risk by some estimates, analysts have identified semiconductor companies such as Lumentum, Qorvo, Skyworks, Xilinx, Qualcomm, Analog Devices, Broadcom, Intel, Nvidia and others as potentially vulnerable to revenue declines if the ban remains in effect. These and other companies are using their collective clout to lobby the President on this issue, even as they begin to make precautionary changes to their supply chains and business models in response. Relief is unlikely to come until the G20 meeting in Osaka Japan on June 28-29, in which President Trump and Chinese President Xi are tentatively scheduled to meet.
How the market finished last week, the S&P 500 down 1.2%, the Nasdaq down 2.3%, and the Dow down 0.7%.
Market Direction This Week: We track
the stock market with our Bullish
and Bearish Alerts and for the last
17 weeks the stock market has been Bullish. The returns since the alert was
made have been amazing and continue to be impressive (see Market Direction Mid Week Update: Trading Strategies).
The battle between the U.S. and China on trade, tariffs, technology and national security, as well as related tweets and news, is likely to continue to dominate markets for the foreseeable future.
With earnings season basically over and few upside catalysts on the horizon until the next earnings season starts in mid-July, trade/tariffs will continue to dominate the market’s movements in the near-term. As detailed in the Asia section above, relief on this issue is unlikely to come until at least the G20 meeting in late-June; possibly even later.
When the SPX was less than a point below its recent all-time high on 5/3, this market seems ripe for another downturn…it is probably on the near-term horizon”. Since that date, the SPX has fallen over 123 points (-4.2%).
A new trade agreement could result in a rally of +2% to +3%, back near record highs again, whereas if the US and China both walk away from the negotiating table, another -5% to -7% downside is very possible. The only change from this perspective is that it will now take about +4% to get back to record highs. With these considerations in mind, and the continued wide disagreement in the market indicators I follow the stock seem very volatile next week.
Economic Calendar: Consumer Confidence (5/28), GDP (5/30), International Trade (5/30), University of Michigan Consumer Sentiment (5/31)
Some of the major earnings announcements on deck: MOMO, GOOS, VEEV, COST.
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