Market Direction: BULLISH alert issued 9/5/2019
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Market Direction Week Review: Improving
economic data, supportive global central-bank policies, and optimism around
trade all led stocks to advance near record highs. China announced that it
would exempt some U.S. products from tariffs, and the U.S. responded with
delaying the increase in some of the tariffs scheduled to take effect next
month. These goodwill gestures from both sides sparked optimism that an interim
trade agreement can be achieved. Notable market moves last week include a
sizable rise in Treasury yields and the outperformance of cyclical sectors
(financials, industrials, energy) over defensives (utilities, health care,
staples). Another shift was the preference for stocks with depressed valuations
over stocks that traditionally trade at higher price-to-earnings ratios, which
have outperformed this year.
On
Tuesday (9/10) President Trump terminated his third National Security Advisor
John Bolton, or he resigned, depending upon which of the two you ask. Normally
this wouldn’t be surprising news, but it caused about a 7% drop in crude oil
prices. Apparently while President Trump had expressed interest in meeting with
Iranian leaders and potentially easing economic sanctions, Bolton was opposed
to that idea. Easing sanctions on Iran could lead to Iranian oil re-entering
the global crude market, and such a supply increase would likely mean lower
prices. European allies no doubt see this as a positive development as they
have been pressured by the U.S. not to buy oil from Iran.
Separately,
on Thursday (9/12) President Trump gave equity markets a boost when he
announced that he would postpone a previously scheduled tariff increase on
about $250B in Chinese imports, from October 1st until October 15th.
While market optimism has risen this week, Treasury Secretary, Steven Mnuchin
dismissed speculation that the administration is working towards a watered-down
deal ahead of the 2020 presidential election, saying that President Trump,
intends to keep existing tariffs in place and is even prepared to raise tariffs
if needed.
On
Thursday (9/11) Chinese trade officials announced a list of $1.6B of U.S.
imports, on which new 25% tariffs would be exempted, leading to more speculation
that China is suffering from the trade war, worse than the U.S. The exemption
will take effect on Tuesday (9/17) and include such products as
pharmaceuticals, lubricating oil, alfalfa, fish meal, and pesticides. Tariffs
on these products began back in July, and these moves are in response to
exemption requests that have been approved in the interim. Further exemptions
are also expected after the next round of exemption requests closes on October
15. For now, Chinese trade officials are still planning to travel to Washington
DC next month for another round of trade talks, which they are hoping will
focus only on trade matters and avoid the issues of Hong Kong, national
security and human rights.
Separately,
Hong Kong Chief Executive, Carrie Lam said that she could not endorse calls for
the U.S. to pass a law allowing for annual assessments of Hong Kong’s special
trading status, despite calls for such action by protestors outside the U.S.
consulate in Hong Kong.
This
week in Brexit news, U.K. Prime Minister, Boris Johnson published a paper that
described the likely “worse-case-scenario” Brexit outlook. The paper predicted
the potential for food and fuel shortages, supply chain disruptions, and public
protests. It also anticipates widespread delays in the transportation of
freight between the U.K. and France, a lack of availability of medications,
fresh produce, seafood, and fuel, as well as disruptions in financial services,
and road traffic. Perhaps most interesting is that it seems contrary to Mr.
Johnson’s own perspective that the U.K. would be fine in the event of a no-deal
Brexit. You’ll recall that last week Parliament passed a law preventing such an
outcome, and forcing Mr. Johnson to go back to the bargaining table with the
E.U., whether he wants to or not. It remains to be seen if he will comply.
How
the market finished last week, the S&P 500 up 1.0%, the Nasdaq up 0.9%, and
the Dow up 1.6%.
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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 9/5/19 and we suggested to our followers they can trade any new long positions based on are model. We will continue to provide you the current stock market conditions as they develop. The current stock market environment is in an uptrend (see Market Direction Mid Week Update: Trading Strategies).
The economic calendar is fairly light next week but all eyes will be on the Fed and its post-FOMC meeting press conference on Wednesday (9/18). A 25 bps rate cut seems a virtual certainty and since that is already baked into the market, “buy the rumor; sell the news” is a very distinct possibility.
China has agreed to come to Washington for more trade talks next month and both sides have softened a bit on the tariff front. Economic data is improving, inflation and long-term interest rates continue to move higher, and the SPX seems almost certain to reach a new high soon. But further rate cuts after 9/18 are looking less and less likely, and with the SPX +5.7% in the past 3 weeks, sentiment seems extremely stretched to the upside. Negative seasonal factors often come into play this time of year too. In other words, while the markets are acting like there is nothing to worry about; there is plenty to worry about. However, regardless of what the data shows, this caveat shall remain until further notice, “Trump’s tweets still trump everything else”.
Economic Calendar: Industrial Production & Capacity Utilization (9/17), FOMC Decision (9/18), Leading Economic Indicators (9/19)
Some of the major earnings announcements on deck: ADBE, FDX, DRI, GIS.
$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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