The Lazy River

The lazy river.  Stocks drifted down (or rather up) a lazy river with the Federal reserve, closing slightly higher in yesterday’s session.  Traders defied any negativity choosing instead to follow on last week’s bullish momentum as retail investors jumped into the fray in a FOMO trade.

WHAT YOU NEED TO KNOW:

1)  A US Chinese trade deal is probably coming… just not soon.  Yesterday, traders learned that the meeting between Presidents Trump and Xi that was supposed to happen later this month has been pushed back to sometime in June.  Traders largely ignored the bad news.

2)  China is trying hard to play nice.  After calling a timeout in December, China purchased some US soybeans as a good will gesture.  WHILE YOU SLEPT, US Agriculture Secretary Sonny Purdue announced that China has agreed to significantly step up its purchases of US grown produce going forward, as part of a pending trade deal.

3)  The Federal Reserve continues to provide wind to the sails of the bulls.  In this recent period of thin economic and corporate news the Fed’s recent dovish shift continues to be at the center of the “buy stocks” thesis of most investors.  Yesterday’s market move was centered around hopes that the Fed would extend its dovishness yet further during its FOMC meeting this week with a decision to end balance sheet normalization.

THE MARKETS:

Stocks traded up through yesterday’s session as the dialogue around this week’s FOMC meeting had traders hoping for more stimulus.  Equities started the session on a bullish note trading up at the open and after a mid morning fade they traded up into the close.  The S&P500 traded up by +0.4%, the Dow Jones Industrials rose by +0.3%, the Russell 2000 edged up by +0.67%, and the NASDAQ 100 ascended by +0.26%.  A factor which is closely watched by many traders is the performance of small cap stocks relative to the greater market.  Small cap stocks, represented by the Russell 2000, are typically the first to show signs of fatigue in a bull run.  Last year, the R2K peaked in August well before the Dow, which reached its all time high in October.  The Russel began an epic descent almost immediately after peaking, falling by nearly -27% before the Fed backstopped the markets.  The larger cap indices ultimately followed the Russel down.  The small caps have long been used as one of several canaries in the coal mine.  In the equity markets’ latest bid to hit new highs, the Russell 2000 has been lagging behind the other indexes leaving the most cautious traders somewhat concerned.  You will note that the S&P, Dow, and NASDAQ are all well above their key technical levels, while the Russell still remains below its 200 day simple moving average (see charts 4, 6, 7, and 8 in my attached daily chartbook).  Bonds were virtually unchanged yesterday with the ten year treasury closing at a yield of 2.6% and the 2/10 yield curve remaining steady at +14 basis points.

WHAT TO LOOK FOR TODAY:

This morning the US Census Bureau will release its Factory Orders for January which are expected to have risen by +0.3% versus last months growth of +0.1%.  Also this morning we will get Durable Goods Orders which are expected to have increased by +0.4% flat from last month’s release.  Michael’s Companies will announce its earnings before the bell and FEDEX will announce after the close.  The day will once again be dominated by speculation about the Fed, whose Open Market Committee will begin its two day policy meeting today.

daily chartbook 2019-03-19