Time to pay the fiddler

Time to pay the fiddler.  After ignoring warning signs, stock traders were caught off guard by weak economic numbers causing an orderly selloff in yesterday’s session.  A collection of weak economic numbers in the morning session did not cause panic but rather a healthy reassessment of market valuation.

WHAT YOU NEED TO KNOW:

1)  President Trump will meet with Chinese Vice Premier Liu today in an attempt to further trade talks and to discuss the possibility of extending the looming March 1 deadline for additional tariff hikes.  The market, along with many China experts, is expecting the March 1 deadline to be extended.  A group of China analysts were polled in a Bloomberg survey and many believe that tariffs will ultimately rise as both sides will be unable to strike a permanent  and substantial deal.

2)  Yesterday’s data releases put fears of an economic slowdown in sharp focus.  The numbers suggested softness in housing, manufacturing, and orders of durable goods.

3)  Consistent with the thesis of the FOMC, economic releases abroad suggest a continued slowdown of the global economy.  PMI’s in Germany and Japan both fell below 50 suggesting an actual pullback. German economic growth has ground to a halt as economists are expecting zero GDP growth for the industrial giant.

Stocks took a pause yesterday as a steady stream of weaker than expected economic numbers were released.  Durable Goods Orders came in lower than expected at  +1.7% propped up by strong demand for autos and aircraft.  Without the transportation orders, the same number showed a lower than expected +0.1% growth for December.  Manufacturing PMI came in lower than expectation at 53.7 versus last month’s 54.7 and the conference board’s Leading Index release fell by -0.1% for a second month in a row, also below expectations.  The Philadelphia Federal Reserve Bank released their Business Outlook survey and it came in at -4.1 versus last month’s 17.0 while analysts were expecting 14.0.  Finally, the Existing Home Sales number showed a decline of -1.2%, which was lower than analyst estimates of +0.2% growth.  Wow, that was a lot to take in!  Despite all of the unexpectedly weak numbers, the selloff in stocks was mild in comparison to the gains in recent weeks.  The S&P500 fell by -0.35%, the Dow Jones Industrial Average slid by -0.4%, the Russell 2000 declined by -0.39%, and the NASDAQ 100 dropped by -0.38%.  All of the indexes traded lower earlier in the session and were helped by a late rally in the last half hour of trade.  Bonds also traded off yesterday with the aggregate bond index slipping by -0.2% and ten year treasury yields rising almost 5 basis points to 2.69%.  While yesterday’s pause was a healthy day of reflection for the bulls that have driven the market in recent weeks, the next few sessions will be a real test of the recent rally’s staying power.

WHAT TO EXPECT TODAY:

No major economic releases are expected this morning but we will hear a lot from the Fed today.  Fed speakers include Raphael Bostic, John Williams, Mary Daly, Richard Clarida, Randal Quarles, Patrick Harker, and James Bullard.  Yeah, that’s a lot of Fed speak!  While no major revelations are expected, the speaking engagements will be closely monitored by analysts.  Let’s not forget that this most recent rally was sparked and sustained by the Fed.  We will hear from Wayfair and Cabot Oil & Gas Corp before the bell making this a light morning.  Next week will be jam-packed with economic releases that will range from housing to consumer confidence to GDP with all of its highly anticipated inflation components.  Have a great weekend and please call me if you have any questions.

daily chartbook 2019-02-22

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