Market Direction Week of October 28, 2019: Trade, FOMC, and Earnings

Market Direction: BULLISH alert issued 10/24/2019



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Market Direction Week Review: U.S. stocks rose for the third straight week, closing near record highs. Earnings continue to drive market action, with third-quarter results so far coming in better than feared. Reports that the U.S. and China are close to finalizing sections of the trade deal also boosted investor sentiment. As the trade rhetoric has softened, international stocks have outperformed U.S. stocks this month. However, both emerging-market and developed-market stocks are about 16% off their all-time highs reached back in 2007. 

This week we learned that Senior Economic Advisor, Larry Kudlow arranged a meeting just 2 days before the most recent US/China trade talks, to allow outside experts to impress upon President Trump that escalation of the trade war with China is likely to hurt his re-election prospects. While the strong economy is working in the President’s favor, trade uncertainty is a countervailing force that should not be ignored. Whether the effort succeeded or not is still unknown, though tariffs due to increase on October 15^th were postponed following the meetings, and current plans call for President Trump and President Xi to meet in Chile in December, to ink the deal.

Consistent with the most recent agreements in principal between the US and China on agricultural purchases, Chinese buyers have reportedly re-entered the market for American soybeans this week. Under the agreement, China will reportedly buy $20B per year in agricultural products; about the same as in 2017. When a final trade agreement is reached in the future, those purchases are expected to rise to $40-$50B per year, but only once all tariffs are removed. 

Following 5 straight months of violence and protests, Hong Kong Chief Executive Carrie Lam announced this week that the negative toll pushed Hong Kong into an economic recession in Q3. Speaking in Washington DC on Thursday, Vice President Pence accused China of curtailing the rights and liberties of Hong Kong’s people and violating the international agreement about Hong Kong.  

This week in Brexit news: Despite a small victory in gaining parliamentary support for the general principals of his latest deal with the European Union, U.K. Prime Minister, Boris Johnson’s most recent attempt to force the divorce by 10/31 was rejected by the House of Commons on a 322 to 308 vote. It’s not all bad news though, as the overall consensus is that current developments have reduced the likelihood of the “no-deal” Brexit that many hope to avoid.

How the market finished last week, the S&P 500 up 1.2%, the Nasdaq up 1.9%, and the Dow up 0.7%.

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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). 

Q3 earnings season is getting extremely busy. With 200 companies (40%) of the S&P 500 reporting this week.

While equities are fighting technical resistance at all-time highs, a moderately upbeat earnings season and data that shows recent downside hedging has been greatly reduced, will likely carry trader optimism into this week.

A couple of events will put the markets to the test this week. First, high-level trade negotiations between the U.S. and China are expected at the end of the week. Second, the Federal Reserve will be thrust into the spotlight. Several Federal Open Market Committee (FOMC) members are scheduled to speak, and meeting minutes from the FOMC’s September meeting will be released Wednesday.

Investors will be eagerly waiting to see if the U.S. and China are able to make meaningful progress when negotiators meet in Washington Thursday. In an interview with Bloomberg TV, White House economic advisor Larry Kudlow said Friday that there could be “positive surprises” coming out of the talks.

Tensions have been running hot between the U.S. and China and additional U.S. tariffs are set to go into effect December 15. A lack of trade progress could send investors into a frenzy.

Meanwhile, Fed Chairman Jerome Powell is scheduled to speak on two separate occasions this week. On Tuesday, Powell will be in Denver, Colorado at the The 61st National Association for Business Economics (NABE) Annual Meeting. He will be discussing “Data Dependence in an Evolving Economy.” Wednesday, Powell will be at the Fed Listens: A Community Listening Session in Kansas City, Missouri. The FOMC will also release its September meeting minutes Wednesday afternoon

While the recent economic data has illustrated a contracting manufacturing sector and a weakening services sector, the consumer is still strong and the labor market is solid. While the Fed’s next policy move is unknown, what is known is that the FOMC members are divided. Regardless, Powell and the Fed will do whatever is necessary to sustain the expansion.

“The big question is whether Fed officials themselves have been as swayed as the markets by the incoming data?” Capital Economics said in a note Friday. “At that last meeting, five officials disagreed with the September rate cut, five others were not projecting any further cuts this year and, of the seven who were open to additional loosening this year, all of them anticipated only one more 25bp cut before year-end.”

The FOMC minutes should provide a clearer picture as to whether or not the central bank plans on cutting rates at its meeting at the end of this month and then again in December.

Though the earnings schedule remains light for the week, a handful of big companies are gearing up to release results. Pizza giant Domino’s, retailer Levi Strauss, airline Delta and big bank Citigroup’s results with be the highlights.

Economic Calendar: Consumer Confidence (10/29), GDP (10/30), FOMC Rate Decision (10/30), Employment Report (11/1)

Some of the major earnings announcements on deck: GOOGL, MA, FB, AAPL, BABA.

$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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