Stop and stretch. Markets slowed down the pace closing mixed yesterday after a fast paced run towards old resistance levels. Stocks opened higher yesterday on an over-the-weekend Presidential tweet that he was delaying a pending tariff hike due to “substantial” progress but the news was not enough to keep stocks up and they faded into the close.
WHAT YOU NEED TO KNOW:
1) Today, Fed Chairman Jerome Powell will testify in front of the Senate banking committee where he will be grilled by senators about the economy and Fed policy. Surely Powell will continue to spread the most recent party line of “inflation under control, global economy looks a little shaky, patience on rate hikes, and maybe we will stop selling bonds”, but one wonders how many different ways the Chairman can say the same thing and just maybe he will provide investors a little more insight on just how long he anticipates the rate hike pause to last. Investors will be watching!
2) High profile Capital Hill guest number 2 will be former Trump lawyer Michael Cohen, who will testify today to at least three congressional committees. Cohen is expected to dish some of the sordid details of his former boss’ business affairs and it will most likely be filled with lots of reality TV like drama as the congressional leaders themselves wrangle across the aisle. Cohen’s testimony should not be market factor but traders will certainly be watching because who doesn’t like a juicy mid-session drama on all of the news stations.
3) President Trump wants oil prices to be lower… and he tweeted his feelings… and oil went lower. Energy costs are a big factor in not only consumer inflation but also industrial inflation. For producers of goods, oil is…well, the oil of industry and for consumers lower prices at the pump mean more dollars spent on retail. Crude oil has been slowly climbing since hitting a low around $42 a barrel in late December and played a roll in helping stocks on their meteoric rise over the same period. Recently oil has caught a bit more bid (which means it’s trading up in Wall Street talk) with the troubles in Venezuela and a Saudi pledge to slow production (see chart 11 in my attached daily chartbook).
Equities started off strong yesterday on news that the US would extend a March 1 deadline for tariff hikes on Chinese imports. It really wasn’t news as the extension was largely expected and the markets lost their steam as that reality set in. There is an old Wall Street saying: “Buy the rumor and sell the news”, and that is a scenario which should be taken seriously after stocks have continued to extend gains on “trade hopes”. There has been a steady and highly controlled stream of positive rhetoric coming from the White House on the progress being made in negotiations. The positive progress has been a big factor in helping equities extend the rally sparked by the patient Fed bringing many risk assets into an overbought state. Once a deal or details of a deal are announced, whether partial or all-encompasing, there is a risk that stocks will weaken a bit. In other words, traders may sell on the news. It is important to remember that even if the US is able to negotiate a dream deal with China which would add to US GDP, it would come as a loss to another economy like Japan or South Korea as China shifts its import dollars to the West. The weakening global economy would be no better off. The S&P500 is now around 4% higher than it was last March when the President announced his first round of steel tariffs implying that success is already baked into the markets.
WHAT TO LOOK FOR TODAY:
Today we will get Housing Starts and Building Permits giving us a read on the state of the housing sector which has been faltering. Housing Starts are expected to have slowed by -0.1% versus last months growth of +3.2%. Permits are expected to show a month over month decline of -2.6% after having grown by +5.0% last month. We will also get Case-Shiller home price index which is expected to show a year over year growth of +4.5% versus last month’s +4.68%. Later this morning we will get the Conference Board’s Consumer Confidence Index and it is expected to have grown to 124.9 from last month’s read of 120.2. To learn more about Consumer Confidence, its importance, and how it is calculated, read my note on the subject here: https://www.siebertnet.com/blog/index.php/2019/01/30/they-earned-it/ . This morning we will get earnings from Home Depot, Macy’s, and AutoZone, amongst others. Traders will carefully watch these releases and their impact on retail sales, which has been under scrutiny of late. After the market, releases include Palo Alto Networks, Mylan, Toll Brothers, and Public Storage. Today’s big news will come from Capital Hill which should provide some insights, if not entertainment.
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