Market Direction: BEARISH alert issued 5/23/2019
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Market Direction Week Review: In a
relatively quiet week stocks edged higher, with small-cap companies
outperforming. A couple of high-profile mergers lifted investors' sentiment
early on. However, indexes gave back some gains on Friday after chipmaker
Broadcom warned that the U.S./China trade tensions are dampening demand. Oil
attempted to rally following attacks on two tankers near the Persian Gulf, but
finished the week lower on worries of lower global demand. On the economic
front, U.S. retail sales showed a rebound in consumer spending in May following
a slow first quarter, providing evidence that consumers are still
well-positioned.
The
U.S./ China trade war may soon begin to pinch U.S. consumers. This week more
than 600 U.S. companies, including retailing giants Walmart (WMT), Target (TGT)
and Macy’s (M) sent a letter to President Trump, urging him to resolve the
trade dispute with China. These and other companies in the manufacturing,
retailing and energy sectors emphasized that if/when the threatened new tariffs
on $300B in consumer goods take effect, they will have a significant and
long-term impact on American businesses, farmers, and families. A detailed
report commissioned in February showed that the new tariffs would likely lead
to a loss of more than 2M American jobs, and increased expenses of about $2,300
per year for an average family of four.
In
the race to replace Theresa May, former London Mayor, Boris Johnson received
the largest number of votes (114) and easily won the first round ballot to
become Britain’s next Prime Minister. The win was a whopping majority, as the
second place finisher, Foreign Secretary, Jeremy Hunt garnered only 43 votes.
The next round of voting is scheduled for Tuesday (6/18) and with the
elimination of the 3 weakest candidates, will include the 7 remaining. Johnson
continues to be the clear favorite with local odds-makers giving him about an
80% probability of securing the top job.
As
a result of the ongoing U.S./China trade war, industrial output growth in China
has suffered. The latest report showed the largest slowdown since 2002. While
Chinese officials have publicly stated the economy is strong enough to weather
the storm, they have also stated that if necessary, there is “tremendous” room
for further economic stimulus, including allowing further depreciation in the
yuan against the dollar. Chinese analysts says deteriorating economics likely
increase the odds of a Trump/Xi meeting at the G20 summit in Osaka Japan on
June 28-29; though no official date or time has been set.
How
the market finished last week, the S&P 500 up 0.5%, the Nasdaq up 0.7%, and
the Dow up 0.4%.
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Market Direction This Week: We track the stock
market based on our Bullish and Bearish Alerts a Bearish Alert recently
started on 5/23/19 and since the Alert the stock market indexes have fallen
tremendously. Taking new positions at this time should be done with caution. We
will continue to advise you of the current stock market conditions (see Market Direction Mid Week Update: Trading Strategies).
With
few upside catalysts on the horizon, the FOMC meeting on Wednesday (6/19) is
likely to dominate the markets movements for most of next week.
The
Fed Funds Futures probability of a rate cut at next week’s Fed meeting is now
about 18% and more than a 99% chance that rates are cut some time later this
year. While every rate hike since the beginning of 2015 has been
preceded by a Fed Funds Futures probability >68%, since we don’t have Fed
Funds Futures data going back to 2008 when the last rate cut occurred, we don’t
yet know if this will be true for rate cuts too.
While
the U.S. and China seem to be making little progress on reaching a trade
agreement, the markets seem to be adjusting to the strained relationship
between the two countries as the new normal. I see virtually no chance of any
of this changing until at least the G20 meeting in late-June; and even that
remains a big unknown at the moment. While I would expect a little volatility
around the FOMC meeting on Wednesday (6/19), I see very few other catalysts to
lift markets in the near-term.
The
outlook for next week will solely be influenced by the Fed Meeting and could
cause a down market and volatility to spike, but the fact that the VIX is
modestly elevated already, means any increases (except perhaps on Wednesday)
should be relatively small.
Economic Calendar: Fed Meeting Starts (6/18), Fed Decision (6/19), Leading Indicators (6/20), Existing Home Sales (6/21)
Some of the major earnings announcements on deck: ADBE, ORCL, DRI, KR, WGO.
$tockMarketDirection proprietary model is currently BEARISH. 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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