U.S. markets closed lower for a second-straight session as worries of a potential trade war resurfaced after President Donald Trump announced that his administration will seek to trim the U.S.’s trade deficit with China by $100 billion via tariffs.

The Dow declined 1% after testing a low of 24,668 with support at the 100-day moving average holding.

The S&P 500 sank 0.6% after making a backtest to 2,744 but held its 50-day moving average into the closing bell.

The Russell 2000 fell 0.5% after failing resistance at the 1,600 level shortly after the open. The low reached 1,582 with a move below 1,580-1,575 being a slightly bearish development.

The Nasdaq gave back 0.2% after testing an intraday low of 7,473 to settle just below the 7,500 level for the first time in three sessions.

Utilities jumped 1% while Real Estate added 0.2% and were the only sectors that closed in positive territory. Materials fell 1.2% while Industrials and Financials declined 1.1% to pace sector laggards.

Q4 earnings season turned out to be very impressive, with extremely strong momentum on the revenue side, and a preponderance of positive surprises and estimates for the current and coming quarters going up.

Total Q4 earnings for the 98% S&P 500 members that have reported are up 14.1% from the same period last year on 8.5% higher revenues, with 77.4% beating EPS estimates and 75.8% topping revenue estimates.

Q4 earnings growth for the Energy sector is the highest of all sectors, with total earnings for up 157.2% from the same period last year on 23.8% higher revenues.

Excluding the Energy sector, total Q4 earnings for the rest of the S&P 500 index would be up 11.8%.

Earnings growth for the Technology sector turned out to be very strong, with total Q4 earnings up 23.7% on 11.1% higher revenues.

Finance sector earnings are up 1.3% on 4% year-over-year growth in revenues.

For the small-cap S&P 600 index, Q4 results from just over 90% of its members show earnings are up 16.6% on 9% higher revenues. The proportion of positive EPS and revenue surprises are at 60.9% and 71.8%, respectively.

For full-year 2017, total earnings for the S&P 500 index are track to be up 7.1% on +5.9% higher revenues, which would follow 0.7% earnings growth on 2.2% higher revenues in 2016.

Index earnings are expected to be up 20.7% in 2018 and 9.8% in 2019.

The implied Earnings Per Share (EPS) for the S&P 500 index, calculated using the recent index 2018 P/E of 18.7X, is $146.20. Using the same methodology, the index EPS works out to $160.60 for 2019 (P/E of 17X).

Global Economy – European markets finished mostly lower with Germany’s DAX 30 bucking the trend after rising 0.1%. The Belgium20 tumbled 1% while the Stoxx Europe 600 and France’s CAC 40 slipped 0.2%. UK’s FTSE 100 dipped 0.1%.

ECB President Draghi said that the ECB still needs to see further evidence that inflation dynamics are moving in the right direction so monetary policy will remain patient, persistent and prudent.

Eurozone January industrial production fell 1.0% month-over-month, weaker than expectations for a slide of 0.5% and the biggest decline in 13 months.

Asian markets closed lower across the board despite better-than-expected economic data out of Japan and China. Japan’s Nikkei sank 0.9% and Australia’s S&P/ASX 200 declined 0.7%.

China’s Shanghai gave back 0.6% and Hong Kong’s Hang Seng fell 0.5%. South Korea’s Kospi dipped 0.3%.

China February industrial production rose 7.2% year-to-date, stronger than expectations of 6.2% and the fastest pace in 3 years.

Japan January core machine orders rose 8.2% month-over-month and 2.9% year-over-year, stronger than expectations of 5.2% and for a drop of 0.7%, respectively.

MBA Mortgage Applications rose 0.9%, along side a 3.4% surge in the purchase index and 2.2% decline in the refinancing index for the week ending March 9th.

The average 30-year fixed mortgage rate rose another 4 basis points to 4.69%, the highest level since January 2014.

February PPI rose 0.2% with the core rate also up 0.2%. The 12-month growth rate was up a tad to 2.8% year-over-year for the headline, from 2.7%, and 2.5% year-over-year for the ex-food and energy component compared to 2.2%. Goods prices declined 0.1% last month after rising 0.7% previously.

Service sector prices increased 0.3% after rising 0.3% in January.

February Retail Sales fell 0.1 % with the ex-auto component up 0.2%. Sales excluding autos, gas, and building materials edged up 0.1% versus the prior flat print.

Motor vehicles and parts dropped 0.9%. Gas station sales were down 1.2%. Furniture sales fell 0.8%. There were also declines in electronics, health, general merchandise, and food sales.

Clothing rose 0.4%, while sporting goods bounced 2.2%, with non-store retailers up 1%.

Atlantic Fed Business Inflation Expectations were up 2.1% for the year.

January Business Inventories were up 0.6%, topping forecasts of 0.5% for the month.

Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) rose for a 3rd-straight session after making an intraday run to $120.40.

Fresh resistance at $120.50-$121 held with a close above the latter getting $122-$123 and the 200-day moving average in play. Rising support is at $119.50-$119.

Market Analysis – The PowerShares QQQ (QQQ) pulled back for a 2nd-straight session after tapping an intraday low of $170.93.

Support at $170.50-$170 held with a move below the latter being a slightly bearish development. This area also represents the double-top formation from the January and February highs.

Resistance is at $173-$173.50 with a close above the latter getting fresh all-time highs north of $175 back in play.

RSI is trying to hold support at the 60 level with risk to 50 on a close back below this level. Resistance is at 65-70.

The Consumer Staples Select Spiders (XLP) fell for a 3rd-straight session while testing a low of $53.79. Near-term support at $53.75-$53.50 held with a move below the latter signaling additional weakness.

Lowered resistance is at $54.50-$54.75 and the 200-day moving average.

RSI is in a downtrend with support at 40. A close below this level could lead to a retest of 35-30 and February lows. Resistance is at 50.

Existing Position Update

FB remains below our short strike price. I’m expecting more corrective pressure from the market next few sessions which would increase our profit on the trade.

AAPL is correcting slightly but I do believe price will hold above our bull put spread short strike next few sessions.

No fill on TSLA – will adjust strike prices if no fill by end of day tomorrow.

Roger Scott