U.S. markets traded in a tighter range on Friday while pushing record highs and fresh resistance despite worries over a government shutdown.

The Russell 2000 showed the most strength after rising 1.3% but failed the 1,600 level and its all-time high by 7 points. However, the close north of 1,597 and 0.3% weekly pop represented the third-straight week of gains and 8th record closing high of 2018.

The Nasdaq advanced 0.6% after closing at a record high of 7,336 to extend its weekly win streak to 3-straight. The index closed higher for the fifth time in six weeks after rising 1%.

The Dow climbed 0.2% while holding the 26,000 level but fell shy of its lifetime high of 26,153 set the prior session by 82 points. The S&P 500 rose 0.4% to finish at a fresh record close and all-time high of 2,810.

Both indexes also clinched their third-straight weekly advance and have traded higher in 8 of the past 9 weeks.

Consumer Discretionary and Consumer Staples jumped 1.1% and 0.9% to lead sector strength while Financials and Real Estate added 0.7%. Utilities and Energy were the only sector laggards after falling 0.3% and 0.1%.

For the week, Consumer Staples surged 2.4% while Health Care and Technology rallied 1.9% and 1.5%, respectively. Utilities and Industrials dropped 0.8% and 0.6%. Energy and Materials slipped 0.3% and 0.2% to round out the losing sectors for the week.

The Q4 results from nearly 10% of the S&P 500 companies that have reported earnings thus far have combined to account for 13.7% of the index’s total market capitalization.

Total earnings for these companies are up 11.4% from the same period last year on 7.5% higher revenues, with 77% topping EPS and revenue estimates.

For the coming week of earnings, Technology, Industrials, and Financials will be the dominant sectors.

Approximately 22% of the weight of S&P companies will be reporting, making its impact on the index far-greater than the market has seen in the prior two weeks of 4Q earnings season.

Global Economy- European markets closed higher across the board to end the week with Germany’s DAX 30 leading the way after jumping 1.2%. France’s CAC 40 was up 0.6% while UK’s FTSE 100 and the Stoxx Europe 600 advanced 0.5%. The Belgium20 climbed 0.4%.

UK December retail sales ex-auto fuel fell 1.6% month-over-month, weaker than expectations for a drop of 1%. UK December retail sales including auto fuel tumbled 1.5% month-over-month, weaker than expectations for a decline of 1%.

German December PPI rose 0.2% month-over-month and 2.3% year-over-year, matching expectations.

Asian markets ended mostly higher, with Australia’s S&P/ASX 200 lagging after giving back 0.2% to post it sixth decline in eight sessions. China’s Shanghai and Hong Kong’s Hang Seng rose 0.4% while Japan’s Nikkei and South Korea’s Kospi were up 0.2%.

The University of Michigan January consumer sentiment index slid 1.5 points to a 6-month low of 94.4, after falling 2.6 points to 95.9 in December. Expectations were for a print of 97.

Baker Hughes reported the U.S. Rig Count was down 3 rigs from last week to 936, with oil rigs down 5 to 747, gas rigs up 2 to 189, and miscellaneous rigs unchanged.

The U.S. Rig Count is up 242 rigs from last year’s count of 694, with oil rigs up 196, gas rigs up 47, and miscellaneous rigs down 1 to 0. The U.S. Offshore Rig Count was unchanged at 19 rigs and down 5 rigs year-over-year.

Market Sentiment- San Francisco Fed, John Williams, said economic tailwinds are being provided by financial conditions and confidence, along with tax cuts and the global economic environment.

He expects unemployment to fall to 3.7% late this year and views low inflation as good news while predicting it will return to 2% in the next two years.

Williams went on to say the Fed needs to get monetary policy back to normal and he doesn’t view the Fed as ahead of or behind the curve, but well-positioned to keep the economy on a sustainable path.

Fed Vice Chair of Supervision, Randal Quarles, said streamlining the Volcker Rule has begun and he supports a permanent transition to a 2-year cycle for bank living wills.

He noted progress on the leverage ratio recalibration relatively soon, and expects the Fed to take concrete steps to recalibrate liquidity requirements for non-global large banks.

Quarles said he will also work with the board to simplify loss absorbency requirements along with promoting better, but not complete, disclosure of the Fed’s stress-testing models.

Cleveland Fed, Loretta Mester, said the U.S. Federal Reserve should raise interest rates three to four times in both 2018 and 2019, and a pace that is a much faster than many of her fellow policymakers.

She said the economy should grow at about a 2.5% pace this year, fueled both by consumer and business spending, though the recently passed tax cuts could drive growth even faster and will continue to provide a lift to the economy next year as well.

Mester also forecast unemployment will sink below 4% by the end of the year, and inflation will return to goal within a year or two.

Fedspeak lightens in the coming week as the Fed enters the blackout window against policy remarks with a week to go before the January FOMC decision. Tuesday is the last official day of chatter and when Chicago Fed Charles Evans is scheduled to speak.

The iShares 20+ Year Treasury Bond ETF (TLT) traded lower for the 3rd-straight session after bottoming at $122.98. Fresh support at $123-$122.75 held into the closing bell.

A move below the latter and this month’s low of $122.66 would be a bearish development with continued risk to $122-$122.75 and late October lows. Lowered resistance is at $123.50-$123.75 and the 200-day moving average.

RSI remains in a downtrend with October support at 30 in play on continued weakness. The 50-day moving average has rolled over and is also in a slight downtrend.

It is early, but the technical outlook is showing signs of a bearish death-cross forming in the coming weeks or months.

Market Analysis- The Spider S&P 500 ETF (SPY) traded to an all-time high of $280.41 on Friday with fresh resistance at $282.50-$283 now in play. Near-term support is at $279-$278.75 with a close below $277.50 signaling a possible short-term top.

RSI remains elevated with resistance near 85 holding since early this month. Support is at 80-75 with a move back below this level signaling additional weakness towards 70-65.


The Industrials Select Sector Spider (XLI) tested a high of $79.79 with resistance at $79.75-$80.50 and last week’s all-time peak of $80.60 holding.

Continued closes above the latter could lead to a push towards $82.50-$83. Near-term support is at $79.25-$79 with a close below the latter being a slightly bearish development.

RSI recently peaked at the 90 level earlier this month with current resistance at 80. Support is at 70 and a level that has been holding since mid-December.

The percentage of S&P 500 stocks trading above the 200-day moving is currently at 78.4% with near-term support at 77.5%-77%. A move below the latter could lead to monthly lows towards the 76%-75.75% area.

Resistance is at 78.75%-79% with a close above the latter being a slightly bullish development but still signaling overbought levels.

The percentage of Nasdaq 100 stocks trading above the 50-day moving average closed Friday at 87.5% with current and February 2017 resistance at 90%-91.5% still in play.

Support is at 85%-82.5% with a move below the 80% level signaling a short-term top for the Nasdaq 100.

All the best,
Roger Scott