U.S. markets traded in a narrow range while finishing mixed on Thursday as ongoing trade talks that included President Trump continued after the closing bell.
There is chatter the Trump administration is demanding to set a 2025 target for China to meet trade pledges.
Additionally, President Trump could schedule a meeting with President Xi of China, following talks with Liu He at the White House, but the Chinese apparently are balking on the tariffs remaining in place while awaiting compliance.
Meanwhile, volatility was subdued after closing just above a key level of support and ahead of Friday’s jobs numbers.
The Dow was up 0.6% and closed in positive territory for the 7th time in 9 sessions while trading to an late day high of 26,398. Lower resistance at 26,250-26,500 was cleared and held on the fresh 2019 high.
The Russell 2000 was up for the 2nd-straight session after advancing 0.4% while testing a first half high of 1,567.
Major resistance at 1,575 and the 200-day moving average held for the 2nd-straight session with a close above this level getting 1,590-1,605 in play.
The S&P 500 extended its winning streak to 6-straight after adding 0.2% and testing a high of 2,881 shortly after the opening bell.
Fresh and lower resistance at 2,900-2,925 held with a close above the latter getting 2,950 and fresh all-time highs in play.
The Nasdaq had its 5-session winning streak snapped following the pullback to 7,844.
Fresh and upper support at 7,850-7,800 held on the 2nd-straight close just below the 7,900 level.
Materials continued to be the sector standout after rising 1%. Energy and Consumer Discretionary were up 0.8%.
Utilities and Technology were the weakest sectors after giving back 0.4%.
Real Estate and Healthcare rounded out the laggards with losses of 0.3% and 0.2%, respectively.
Global Economy – European markets closed on both sides of the ledger after U.K. lawmakers approved a bill that would force Prime Minister Theresa May to ask for a Brexit delay.
Germany’s DAX 30 and the Belgium20 climbed 0.3%. The Stoxx 600 Europe gave back 0.3% and UK’s FTSE 100 dipped 0.2%. France’s CAC 40 was off 0.1%.
Germany’s industrial orders for February slumped by 4.2%, well below forecasts for an increase of 0.3%, and the biggest drop since January 2017.
Italy, the 3rd largest country in the eurozone, could soon cut its GDP forecast to 0.1% this year. This would be well below the 1% expansion forecast from December.
Asian markets closed mixed while pausing for another catalyst and further progress on the U.S./ China trade talks.
China’s Shanghai was higher by 0.9%. South Korea’s Kospi added 0.2% and Japan’s Nikkei edged up 0.1%.
Australia’s S&P/ASX 200 fell 0.8% and Hong Kong’s Hang Seng slipped 0.2%
Challenger Job-Cut Report announced layoffs declined 16,2000 to 60,600 in March after rising 23,800 in February to 76,800.
Compared to last March, announced job cuts are 0.4% year-over-year higher, a considerably slower pace of growth than February’s 117.2% clip. For Q1, planned cuts totaled 190,400, the highest quarterly since Q3 2015.
Restructuring is the leading reason for the cuts, followed by bankruptcy. The report noted companies appear to be streamlining and updating their processes, and workforce reductions are increasingly becoming a part of these decisions.
Jobless Claims dropped 10,000 to 202,000, below expectations for a print of 216,000. The 4-week moving average fell to 213,500 after sliding to 217,250 the week before.
Continuing claims declined 38,000 to 1,717,000 after bouncing 11,000 to 1,755,000 the prior week. The slide in claims was a 49-year low, with the level down from the 14-month high of 244,000 in late January.
Market Sentiment – New York Fed John Williams projects potential growth at about 2%, in line with many forecasts for this year. He reiterated monetary policy is in the right place currently, and the outlook remains positive, with growth on track.
While the slowing from the 3% seen last year has caused some angst, Williams reminded it comes with a backdrop of historically low unemployment, and low, sable inflation.
He noted the various factors that boosted economic activity, including strong global growth, fiscal stimulus, and accomodative financial conditions, but said those have now calmed and indeed, reversed in come cases.
Williams added it’s the underlying factors of demographics and productivity that cause him to see a 2% potential growth rate, rather than the heady times of the 1990’s when growth rates were at 4%.
Cleveland Fed Loretta Mester reiterated she sees no urgency to change the policy stance. She said it is possible the Fed is done with rate increases this cycle.
However, she added if growth were to pick back up to, or slightly above trend, labor markets remain strong, and inflation stays near 2% that the fed funds rate may need to move a bit higher than current levels.
Mester reiterated the March FOMC statements that quantitive tightening would slow in May and would cease at the end of September.
She said the Fed plans to return its portfolio to holding mainly treasury securities and will be making decisions on how to best make the transition in coming meetings.
Philadelphia Fed Patrick Harker said his outlook is still net positive.
However, there are some risks to which he is paying close attention to, including business reports of rising uncertainty and decreasing confidence dampening the investment outlook somewhat.
Global factors are also holding his attention, along with renewed concern about the yield curve. On the latter he cautioned that it’s not a foolproof indicator of recession.
Harker sees a fundamentally sound economy with a strong labor market, muted inflation and sustained moderate growth.
However, he added the shadows of uncertainty continue to put him in a wait-and-see mode, and his outlook for rates remains, at most, one hike for 2019 and one for 2020.
The iShares 20+ Year Treasury Bond ETF (TLT) was slightly higher after rebounding from the prior session plunge and testing a high of $123.89.
Prior resistance at $123.75-$124.25 was split on the close above the former. Continued closes back above $125 would be a more bullish development and signal a possible near-term bottom is in.
Current support remains at $123.50-$123 with risk towards $122-$121.50 on a close below the latter.
Market Analysis – The Russell 2000 ETF (IWM) closed higher for 5th time in 6 sessions after reaching an intraday peak of $156.01. Mid-March resistance at $156-$156.50 was challenged for the 2nd-straight session on the close back above the 200-day moving average.
Continued closes above the $157.50 level would be a more bullish signal for a retest of $158-$160 and fresh 2019 highs.
Current support is at $155-$154.50. A close below the latter opens up risk towards $153-$152.50 and the 50-day moving average.
RSI is in an uptrend with lower resistance at 60 and the March highs in play.
Continued closes above this level would be a bullish signal for additional strength towards 65-75 and February peaks. Support is at 50.
The Consumer Staples Select Spiders (XLP) was up for the 1st time in 4 sessions after trading to a late day high of $55.49. Near-term resistance and lower resistance at $55.25-$55.50 was cleared and held.
Continued closes the latter would be a more bullish signal for a possible run towards $56-$56.50 and fresh 2019 highs.
Near-term support from late March is at $55-$54.75.
A move below $54.50 would open up risk towards $54 and the 50-day moving average.
RSI is back in an uptrend with resistance at 60.
A move above this level could lead to a retest towards 65-75 with the latter representing the March peak.
Support is at 55-50 with a close below the latter signaling additional weakness.
We are allocating the portfolio as follows:
30% in CDNS closed on Thursday at 63.67
30% in CTRP closed on Thursday at 44.43
30% in XRAY closed on Thursday at 50.26
10% in TMF closed on Thursday at 20.44
Option Traders – the following (regular monthly) options meet our criteria:
CDNS – AUG 65 Strike Price CALL (Expires August 16, 2019)
CTRP – JUN 43 Strike Price CALL (Expires June 21, 2019)
XRAY – JUL 50 Strike Price CALL (Expires July 19, 2019)
TMF – AUG 22 Strike Price CALL (Expires August 16, 2019)
All the best,
Roger Scott.