Market Direction: BULLISH alert issued 6/20/2019
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Market Direction Week Review: Expectations
for monetary easing around the world continue to drive stocks higher. The Dow
Jones Industrial Average rallied to a record high, closing above 27,000 for the
first time, following the Fed chairman's testimony to Congress. Powell conveyed
that the case for more accommodative policy had strengthened, further
solidifying expectations for a rate cut in the coming months. The European
Central Bank (ECB) is also considering injecting fresh stimulus to the economy
through interest-rate cuts, or the relaunch of quantitative easing. As the
second-quarter earnings season kicks off next week and attention shifts from
central banks to earnings, we think volatility will likely pick up.
Last
week, according to economic advisor Larry Kudlow, the U.S. and Chinese trade
officials held constructive phone conversations about trade. However, China
maintained that for negotiations to make progress, the U.S. must remove all
existing tariffs. A few days later, President Trump tweeted that “Mexico was
doing a great job at the border, but China is letting us down by not buying
enough farm products from the U.S.”
As
mentioned above, and perhaps related to the farm products issue, on Friday
(7/12) China reported that its $29.9B trade surplus with the U.S. was the
largest amount YTD. Chinese trade officials maintain that the purchase of
agricultural products was not a precursor to a trade deal, but rather a part of
the more comprehensive deal under discussion. To that point, data indicate an
actual reduction is purchases since the 6/21 meeting in Osaka, and statements
from China indicate no plans for increases anytime soon.
The
UK’s U.S. Ambassador, Kim Darroch resigned this week following the public
exposure of his private memos which described the Trump administration as
“uniquely dysfunctional and inept”. While President Trump responded to the
comments by calling Daroch a “pompous fool and a very stupid guy”, it was the
risk the exchange posed to U.S./UK relations, and his lack of support from the
likely next Prime Minister, Boris Johnson, that ultimately led to his
resignation.
Separately,
International Monetary Fund (IMF) Chief, Christine Lagarde has been nominated
to succeed Mario Draghi as the next leader of the European Central Bank (ECB).
If she is confirmed by the ECB’s governing council, her term will begin in
November.
How
the market finished last week, the S&P 500 up 0.8%, the Nasdaq up 1.0%, and
the Dow up 1.5%.
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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).
Earnings
season is just beginning this week. Wall Street consensus expectations are
calling for earnings to be 0.0% versus Q2 2018. You may recall back in Q1, the
expectations were for -1.5% but the actual result was +1.3%.
With
only 22 companies (4%) of the S&P 500 reporting don’t read too much into
these numbers as it is very early in the season.
With
still no resolution on trade/tariffs in sight, equities continue to press
further into record territory due to monetary policy optimism. Apparently
“Don’t fight the Fed” is still sound advice.
President
Trump has stated that he wants the Fed to lower interest rates, while Fed Chair
Powell has stated that the Fed should remain independent and free from
political influence. It appears that President Trump has devised the perfect
plan where both of these seemingly opposing issues can coexist; maintain trade
uncertainty at a level that is just enough to necessitate rate cuts, but not
quite enough to adversely impact the markets.
Here
is the 2019 YTD performance of the major U.S. equity indices (as of the close
on 7/11/19):
- S&P 500 (SPX) +19.7%
- Nasdaq Composite (COMPX) +23.5%
- Dow Industrials (DJI) +16.1%
- Russell 2000 (RUT) +15.5%
Some of the major earnings announcements on deck: C, MSFT, JPM, NFLX, CSX.
$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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