Keep on truckin’. Stocks extended their gains once again on Friday on hopes of success in US-China trade talks, as body language and at least one sound bite from the President gave stock investors some more reasons to buy stocks. Equity markets slowly worked their way up through Fridays session and a late day surge helped land all the major indexes in strong technical positions.
WHAT YOU NEED TO KNOW:
1) The May 1st deadline for US-Chinese trade talks was extended WHILE YOU SLEPT. President Trump announced in a Tweet that he was going to extend the May 1st deadline because of the tremendous progress the two sides have made in their ongoing talks. The move helped push Chinese equities into bull territory and US equity futures followed suit.
2) Kraft Heinz took a drubbing in Friday’s session after missing earnings, announcing write downs, and cutting its dividend. The stock fell -27.46% and served as a reminder that, despite the positive moves in the market, company risk still exists and can be minimized through diversification.
Stocks continue to extend their gains despite being overbought because the market likes only one thing more than good news: knowing the unknown. Despite many traders’ belief that some sort of trade deal would occur between the US and China, very few details of just what and how the deal would look like has been available. Though things seem to be progressing, the lack of detail adds a level of risk and as more and more information continues to surface, stocks are responding positively as the risk slowly melts away. This is most evident in the VIX Index, sometimes used as a fear indicator, fell by -6.57% in Friday’s session to 13.51 which is far below the magical 18 level. To learn more about the VIX Index, read my note on the topic here: https://www.siebertnet.com/blog/index.php/2018/11/21/cold-turkey/ . Refer to the VIX chart in my attached daily chartbook (chart 5) to see how market fear and volatility have melted away since Jay Powell and the Federal reserve jumped in to backstop markets in the days following the December 24th low. Friday’s late session rise included the S&P500 trading up by +0.64%, the Dow Jones Industrials climbing by +0.70%, the Russell 2000 increasing by +0.92%, and the NASDAQ 100 ascending by +0.79%. All of the indexes are above their 200 day simple moving averages which is positive for stocks. Bonds remain in a holding pattern with 10 year treasury yields hovering near the low end of their range at 2.65%.
WHAT TO EXPECT IN THE WEEK AHEAD:
This week will be chock-full of economic releases starting with a number of regional Federal Reserve Bank indicators spread out over the next few days. This week will also bring a number of housing-related barometers which will be closely watched due to recent weakness in the sector. The big potential market movers start on Wednesday with Consumer Confidence followed by Durable Goods Orders, preliminary GDP, Personal Consumption, the PCE deflator, manufacturing PMI, and University of Michigan Sentiment. The PCE (Personal Consumption Expenditures) deflator is the Fed’s favorite gauge of inflation and will be very closely watched. Remember that low inflation is the reason the Fed has decided it can be patient with rate hikes. On Tuesday and Wednesday, Fed Chairman Jay Powell will testify on Capital Hill and his testimony will be highly scrutinized by traders, though he will most likely continue to toe the line of patience and happy talk. The week ahead also brings a number of earnings releases which will be dominated by retailers from Lowe’s and Home Depot through Macy’s and Nordstrom, to name a few. Please refer to the attached weekly economic and earnings release calendars for details. You might want to keep the coffee handy this week.
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