Market Direction: BULLISH alert issued 6/20/2019
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Market Direction Week Review: Stocks
finished mixed for the week as markets digested the strong gains for the month
of June. Investors also awaited the much anticipated G20 Summit in Japan with
hopes of a trade truce and resumption of negotiations between the U.S. and
China. The week marked the end the quarter and the first half of 2019, as well
as an important milestone: the 10th anniversary of the current economic expansion.
While volatility picked up modestly in the second quarter of the year, both
bonds and stocks continued to rise, adding to this year’s gains. The main
drivers of performance have been, and will continue to be in our opinion,
shifting central bank policies (with officials showing more willingness to step
in to sustain the economic expansion), continued trade tensions and concerns
around global growth. This economic expansion might now be the longest, but it
still has room to run, in our view.
Fed
Chairman Jerome Powell rattled equity markets on Tuesday (6/25) as he
highlighted the downside risks he sees in the economy. Chief among those risks
was President Trump’s low expectations that a new trade deal will come out of
his meeting with Chinese President Xi on Saturday (6/29). Other risks include
the recent geopolitical tensions with Iran, and slowing global economic growth.
Yet despite bond markets that are already pricing in a rate cut, and President
Trump seemingly demanding the same, Powell continued to emphasize the need for
the Fed to maintain its autonomy and avoid political influence. The big
question is whether Powell will cut rates as a result of these concerns, or
hold steady to assert his independence. I’d say the former is more likely.
Former
London Mayor, Boris Johnson has taken yet another step forward in his bid to
replace Theresa May as Britain’s next Prime Minister. Johnson and his nearest
competitor; Foreign Secretary, Jeremy Hunt are each seeking Britain’s
leadership role. Some recent polls show a 61% probability for Johnson. Johnson
says the UK will leave the EU on 10/31/19 with or without a deal, while Hunt
has said he would seek an extension if it meant a better deal could be
obtained. Both agree that a general election should be delayed until after that
date.
As
you may recall back in May, President Trump increased import tariffs on $200B
worth of Chinese goods from 10% to 25% and threatened to add tariffs on another
$325B of goods; or virtually all remaining Chinese imports. China immediately
retaliated with increased tariffs on $60B of US exports. Many of the goods on
which tariffs have yet to be imposed are consumer products such as mobile
phones, computers, shoes and clothing.
As
mentioned above, President Trump and Chinese President Xi are expected to meet
on Saturday (6/29) at the G20 summit in Osaka Japan; their first face-to-face
meeting in over a month. Prior to the meeting, President Trump says he is
"comfortable with any outcome" and has already expressed his willingness
to suspend the proposed tariffs on consumer products, which hints at his low
expectations of a larger deal. The equity markets’ buoyancy this week may
reflect too much optimism, as the two countries differences are one of vastly
divergent worldviews, rather than minor in scope. Sales of U.S. technology to
Chinese tech company Huawei for example, is a key non-negotiable according to
some Chinese negotiators, but President Trump wants to include that as part of
the deal.
How
the market finished last week, the S&P 500 down 0.3%, the Nasdaq down 0.3%,
and the Dow down 0.4%.
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Market Direction This Week: We track the stock
market based on our Bullish and Bearish Alerts a new Bullish Alert
recently started on 6/20/19 and we indicated to followers new positions could
be entertained at this time. We will continue to provide you the current stock
market conditions as they develop (see Market Direction Mid Week Update: Trading Strategies).
Trade
negotiations between the U.S. and China is the big elephant in the room.
The
markets seem to have priced in the best-case scenario on the U.S./China trade
negotiations, and while a new trade deal is not expected to come from the G20
meeting, holding tariffs at current levels and a commitment to further talks
(trade truce) may be enough in the near-term. In the longer-term, a rate cut
could help, but for how long? The whole situation can be seen as one of
asymmetrical risk; the upside may be a couple percent but the downside is a
whole lot more than that if negotiations fall apart.
Next
week is the Fourth of July on Thursday and the stock market will be closed.
Expect some type of stock market reaction once the employment report is
released on Friday. There is probably more volatility in the market as long as
the trade war with China continues.
Some of the major earnings announcements on deck: No earnings this week.
$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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