Market Direction Week of January 20, 2020: Impeachment Begins

Market Direction: BULLISH alert issued 10/24/2019



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Market Direction Week Review: After about 4 weeks of delays, on Thursday (1/16) the Senate finally passed the new United States-Mexico-Canada Agreement (USMCA) by a solid 89-10 vote. The bi-partisan trade agreement which updates and replaces the 26-year old North American Free Trade Agreement (NAFTA) has wide support from agriculture, manufacturing, and service companies, as well as labor unions. President Trump said he will sign the agreement into law next week.

Separately, this week Speaker of the House Nancy Pelosi sent articles of impeachment against President Trump to Senate Majority leader Mitch McConnell and announced the 7 Democrats who would be serving as prosecutors during the proceedings. But even before the articles were delivered, Majority Leader McConnell stated that he doesn’t expect the Senate impeachment trial to last longer than two weeks; essentially guaranteeing an acquittal. McConnell and other Senators have contended for several weeks that House Democrats have very little credible evidence that can prove any wrongdoing on the part of the President. Chief Justice of the Supreme Court John Roberts will preside over the trial which is expected to get underway on Tuesday (1/21). Democrats have requested, among others, testimony from former National Security Adviser John Bolton, who has expressed interest in doing so, but members of Trump’s staff have stated it could present a national security risk if Bolton testified about his communications with the president. Whether Senate Republicans will allow any other witnesses to testify, has yet to be determined.

As scheduled and with much fanfare, on Wednesday (1/15) President Trump and Chinese Vice Premier Liu He inked the phase one trade agreement in Washington DC. Chinese President Xi Jinping was not in attendance and did not sign the agreement, but Vice Premier Liu relayed his comments that the deal reflects “mutual respect” between the US and China. President Trump hailed the deal as a “momentous step, one that has never been taken before with China, towards a future of fair and reciprocal trade,” He also called it a “sea change in international trade”. It does not remove most of the existing tariffs on Chinese imports. It also does not include any stipulations on the more challenging issues relating to intellectual property violations, forced technology transfer, and subsidization of Chinese industries. Those issues are supposed to be negotiated in phase 2 or phase 3; whenever that might occur. As shown in the Bloomberg chart below, what it does include is a promise by Beijing to purchase $200B more in US goods and services, including more than $30B in agricultural products.

Despite urging from the US to the contrary, British Prime Minister Boris Johnson has indicated his willingness to allow the use of some technology produced by Chinese telecom giant Huawei Technologies, in the buildout of 5G networks across the UK; citing a lack of available alternative technology. Unless a better alternative can be provided soon, he may have no choice if he is to keep to his commitment of delivering 5G technology nationwide by 2027.

Separately in Brexit news, a potential dispute over fishing waters between the Island nations and continental Europe may become the next Brexit battleground topic. Both sides agreed to resolve the issue by June. The current Brexit deadline of January 31^st was just approved by lawmakers (330 - 231) on Friday (1/10), so it looks like a firm date has finally been set.

How the market finished last week, the S&P 500 up 2.0%, the Nasdaq up 2.3%, and the Dow up 1.8%.

Market Direction This Week: We track the stock market based on our Bullish and Bearish Alerts a new Bullish Alert recently started on 10/24/19 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). 

 “As any seasoned runner knows, an aggressive pace out of the gate may be difficult to maintain,” Raymond James Chief Investment Officer Larry Adam wrote in weekly note to clients Friday. “As we cautioned last week, headline earnings were expected to decline 4% year-over-year (YoY) in 3Q19, and although earnings typically beat estimates by ~4%, it is likely to ‘come down to the wire’ on whether or not we can skirt negative earnings growth. The next two weeks should provide additional insights, as 284 companies representing ~66% of the market capitalization of the S&P 500 are set to report.”
 

Adam explained that the tech sector will be a key group to watch this earnings season and reiterated the firms positive outlook on the sector. “There are growing concerns that the slowdown in global economic momentum and the US-China trade war could start to impact the [tech] sector’s earnings,” Adam noted. “Earnings expectations were revised lower by 1.46% in the preceding three months, but that is substantially less than the 3.87% downward revision for the broader market. Over the last ten quarters, the Technology sector has seen the second largest earnings beats at 6.8% and we expect similar success this quarter. Headline risk (e.g., anti-trust debate) could present an opportunity to add exposure, and we maintain our positive outlook on the sector as it has historically been the top performer in an ‘insurance’ rate cut environment.”

Economic Calendar: Existing Home Sales (1/22), Durable Goods (1/23), Initial Job Claims (1/23)

Some of the major earnings announcements on deck: NFLX, MSFT, JNJ, PG, INTC.

$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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