Checking Out

Checking out.  Traders headed for the exits on Friday as bad news from Asia and the EU heightened fears of an economic slowdown in the US.  China and the US made progress on their pursuit of deescalating the trade war announcing tariff cutbacks but that wasn’t enough to ease traders’ tensions about the global economy.  As reported here on Friday, Chinese economic numbers that implied a slowdown upset global markets putting the US markets in defense mode for the beginning of Friday’s session.  Reuters reported that Johnson and Johnson knew that traces of asbestos were in their talcum powder as far back as the 1970’s causing the stock to trade off by more than -10% bringing down the healthcare sector and weighing on the already reeling indexes.  The stock’s loss accounted for over 100 points of loss on the Dow Jones Industrial Index alone.  Traders also began to weigh comments by Mario Draghi from a day earlier implying that economic risks were mounting for the Eurozone.  The combination of mounting risks and bad feelings caused selling leaving all of the major indices in the red.  The S&P500 closed down -1.91%, the Dow Jones Industrial Average closed down -2.02%, the Russell 2000 slipped -1.53%, and NASDAQ100 traded off by -2.56%.  The small cap Russell 2000 closed at a new low for the year while the other indices ended the week at critical levels.  The S&P500 closed right on its 2600 critical support line, where it hasn’t traded since April (see chart 4 in my attached daily chartbook).  The Dow Jones Industrial Average closed below its 24195 Fibonacci support line just above its critical 24000 support line (see chart 6 in my attached daily chartbook).  The NASDAQ 100 index closed just on its 6608 Fibonacci support line just above its critical support at the round 6500 level (see chart 8 in my attached daily chartbook).  All of the major indexes remain risk off. Crude oil has been unable to rally in the wake of the OPEC supply cut just over a week ago putting pressure on energy related investments but its weakness may have some hidden benefits.  Rising energy costs have been contributing factors in past recessions and lower crude prices may be a check in the positive columns as negative column checks begin to rack up.  The 2 year 10 year yield curve ended the week steeper by a few basis points after briefly flirting with 10 basis earlier in the week.  Ten year treasury yields are at 2.88% and two year maturities are trading at 2.72%. Year bills are yielding 2.57% and 1 year Certificates of Deposit are around 2.7%.  With short term rates at these levels and a flat yield curve, these shorter maturities represent a good and safe haven for critical funds.

This week is packed to the brim with economic releases, chief among them is the long awaited FOMC rate decision.  The FOMC will meet on Tuesday and Wednesday and will announce their decision on Wednesday followed by a press briefing.  Though the probability is still high for a 25 basis point rate hike (78% probability), the mounting disparity between opinions amongst governors can lead to surprise results.  Additionally, the policy statement along with the comments and Q&A that follows will add to the market volatility that will surround the meeting.  This week will also feature a number of housing numbers starting with the NAHB Housing Index, due out this morning which is expected to have risen to 61 from last month’s 60 level.  Housing continues to be of particular concern amongst economist as it has been showing signs of weakness attributed to rising rates.  Later in the week we will get the monthly GDP figure which features a number of critical inflation numbers as well as the top line GDP figure.  Refer to the attached economic and earnings release calendars for more details.  Over the weekend WHILE YOU READ YOUR SOGGY NEWSPAPERS (if you live on the East Coast), news of a court ruling declaring parts of Obamacare unconstitutional began to circulate.  The news will likely weigh on the health care sector in the day ahead.  Please call me if you have any questions.

daily chartbook 2018-12-17

earnings releases 12_17

econ numbers 12_17

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