Market Direction: BULLISH alert issued 1/10/2019
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Market Direction Week Review: It was a
busy week with plenty of corporate earnings and economic data to digest, but
with little change in prices. U.S. large-cap stocks finished flat to up
slightly, while small-cap and international stocks outperformed. Economic data
were mixed, but net positive, in our view, with consumer confidence and
productivity rising, and unemployment at a new cyclical low. The U.S. economy
added 263,000 jobs in April, which was higher than expected, along with steady
wage growth -- evidence that the labor market can continue to support growth
without fueling inflation. The Federal Reserve (Fed) reiterated its patient
approach to setting rates on Thursday. While the Fed's message stayed
consistent with the recent narrative, stocks sold off initially, highlighting
the growing risk embedded in investor expectations for rate cuts. We believe
that the Fed will likely continue to be a key driver of equity markets as
officials negotiate the balance between higher rates, a healthy but slowing
economy, and lower inflation.
Despite
some analysts expecting a hike, this week the Bank of England chose to leave
interest rates at their current levels, citing ongoing concerns about the
Brexit, even as it has been delayed through 10/31. Despite the Brexit concerns,
analysts have recently raised 2019 economic growth and inflation forecasts.
Bank of England Governor Mark Carney’s term will end in January 2020, leaving
some to speculate that there may be no rate hikes until his successor is in
place.
This
week China announced plans to open up its $44T financial sector and bond
markets to foreign investment; a move cited by some analysts as likely
beneficial to big US banks that may be interested in taking a stake. Companies
like Alibaba and Tencent seem like attractive targets for partnership
opportunities with Wall Street firms. Likewise China would also benefit from
the change as it would help make global trade in Chinese currency easier.
Separately,
US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin
said the latest round of trade talks, which ended on Wednesday (5/1) were
productive. President Trump has been pushing for the discussions to conclude
within the next 2 weeks, and has even stated that he was prepared to walk away
from the negotiations, rather than allow them to perpetuate indefinitely.
How
the market finished last week, the S&P 500 up 0.2%, the Nasdaq up 0.2%, and
the Dow down 0.1%.
Market Direction This Week: We track the stock market with our Bullish and Bearish Alerts and for the last 15 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).
Better
than expected earnings results, a neutral Fed, the Brexit on hold, a very strong
labor market, low inflation, and productivity that is finally improving, have
all contributed to push the SPX to all-time highs again. But after 10½ years of
bullish markets, a late-spring and possibly summertime pause seems likely.
Markets just don’t go straight up without a healthy downturn every now and then. Sometimes those downturns can become corrections (downturns greater than 10%) like we saw in Q4 of last year, and sometimes they are less scary pullbacks (downturns less than 10%). Since the correction ended on 12/24, the SPX has gained about 25% in the past 4 months and the largest downturn during that time has been less than 2%. With earnings season winding down, and few upside catalysts on the horizon, this market seems ripe for another downturn, some indicators are suggesting we could see a change. It may not happen next week, but it is probably on the horizon.
The stock market has been humming along nicely the VIX is within a point of its YTD low, it is likely that any small pullback will also result in some unexpected event so stay tune.
Markets just don’t go straight up without a healthy downturn every now and then. Sometimes those downturns can become corrections (downturns greater than 10%) like we saw in Q4 of last year, and sometimes they are less scary pullbacks (downturns less than 10%). Since the correction ended on 12/24, the SPX has gained about 25% in the past 4 months and the largest downturn during that time has been less than 2%. With earnings season winding down, and few upside catalysts on the horizon, this market seems ripe for another downturn, some indicators are suggesting we could see a change. It may not happen next week, but it is probably on the horizon.
The stock market has been humming along nicely the VIX is within a point of its YTD low, it is likely that any small pullback will also result in some unexpected event so stay tune.
Economic
Calendar: International Trade (5/7), PPI (5/9), Wholesale Inventories (5/9), CPI (5/10)
Some of the major earnings announcements on deck: DIS, ROKU, REGN, LYFT, FANG
$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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