U.S. markets wrapped up a volatile week with fresh monthly lows as corporate earnings and continued trade rhetoric weighed on sentiment.
Larry Kudlow, head of President Trump's National Economic Council, accused China of refusing to engage on trade issues.
Chinese officials are said to be bracing for a prolonged fight and are focusing on adapting to a new normality in relations.
Meanwhile, volatility continues to stay elevated with a bullish technical pattern in process and still a major warning signal for the market.
The Nasdaq sank 2.1% while tapping a low of 7,057. Early May support at 7,100-7,000 was split with both levels holding into the closing bell.
The Russell 2000 fell 1.1% following the morning fade to 1,459.
February and upper support at 1,460-1,450 was breached with risk to 1,425 on continued weakness.
Tech was down 3.8% for the week while the small-caps gave back 3.9%.
The S&P 500 was off 1.7% after bottoming at 2,628 on Friday.
Late April and upper support at 2,625-2,600 held with risk to 2,550 and February lows on a move below the latter.
The Dow dropped 1.2% after sinking to a first half low of 24,445.
Lower support from late June at 24,500-24,250 was breached with both levels holding into the close.
For the week, the S&P 500 tanked 3.9% and the Dow was hit for a 3% loss.
There was no sector strength on Friday.
Consumer Discretionary led sector weakness after plummeting 3.1%. Communication Services and Real Estate declined 2.7% and 2.6%, respectively.
For the week, Consumer Staples and Real Estate rallied 2.6% while Utilities rose 1.2% to round out the winners.
Energy was slammed for 7.2% while Industrials were punished for 5% and were the biggest losers.
We are just over a quarter of the way into 3Q earnings season and results remain solid.
However, some points of weakness have started showing up, with the strong dollar, freight inflation, trade and economic weakness abroad putting a question mark on estimates for the coming periods.
There are no major surprises on the growth front, though it is decelerating from the first half of the year. Positive revenue surprises are tracking below other recent periods, with Q3 revenue beats the lowest since 2017 Q1.
Total earnings for the 139 S&P 500 members that have reported results are up 22% from the same period last year on 8.7% higher revenues, with 82% beating EPS estimates and 62.6% topping revenue estimates.
Looking at Q3 as a whole, total earnings for the index are expected to be up 20% from the same period last year on 7.2% higher revenues, the 6th time in the last 7 quarters of double-digit earnings growth.
For the small-cap S&P 600 index, 89 index members, or 14.8%, of its members have reported. Total earnings for these small-cap companies are up 30.6% on 12.9% higher revenues, with 69.7% beating EPS estimates and 55.1% topping revenue estimates.
For the small-cap index as a whole, total Q3 earnings are expected to be up 18.1% from the same period last year on 7.4% higher revenues.
The Finance sector, which is an even bigger earnings contributor to the small-cap index compared to the S&P 500 index, is expected to see 52% higher earnings on 6.6% higher revenues.
For full-year 2018, total earnings for the S&P 500 index are expected to be up 20.5% on 6.6% higher revenues. For full-year 2019, total earnings are expected to be up 9.9% on 5.2% higher revenues.
The picture emerging from the Q3 earnings season is one of reassuring strength, with the favorable trends of the last few quarters still very much intact.
The growth pace is still very strong though it has started decelerating from the first half's elevated level. However, some weakness in earnings have started showing up, with the market interpreting weak guidance as a question mark over estimates for 2019 and beyond.
Global Economy - European markets finished lower on Friday following comments from ECB President Draghi after saying there could be some spillover from Italy's budget battle with the European Union.
However, he said the ECB wasn't overly worried about it.
France's CAC 40 stumbled 1.3% while Germany's DAX 30 and UK's FTSE 100 fell 0.9%. The Belgium20 declined 0.8% and the Stoxx 600 Europe was off 0.7%.
German November GfK consumer confidence was unchanged at 10.6, topping expectations for a dip of 0.1 to 10.5.
France October consumer confidence rose 1 to 95, matching forecasts.
Asian markets finished mostly lower on news the U.S. said it would refuse to resume trade negotiations with China until Beijing comes up with a concrete proposal to address Washington's complaints about forced technology transfers and other economic issues.
South Korea's Kospi dropped 1.5% and Hong Kong's Hang Seng was down 1.1%.
Japan's Nikkei was lower by 0.4% and China's Shanghai slipped 0.2%. Australia's S&P/ASX 200 added 0.02%.
GDP posted a 3.5% growth rate in Q3, beating estimates of 3.4%, and compares to the 4.2% Q2 clip and the 2.2% rate from Q1. Personal consumption expenditures rose to a 4% rate from 3.8%.
Fixed investment slipped 0.3%, with spending on nonresidential structures up 0.8% and residential structures down 4%. Inventories added $39.5 billion. Net exports subtracted $98 billion.
Government spending climbed 3.3%. Meanwhile, the GDP chain price index slowed to 1.7% from 3%, with the core rate slipping to 1.6%.
October Consumer Sentiment fell 1.5 points to 98.6, missing forecasts for a print of 99. The current conditions index fell to 113.1 from 115.2 in September.
The expectations index dipped to 89.3 from 90.5. The 12-month inflation index climbed to a 2.9% rate versus September's 2.7%. The 5-year price gauge slowed to 2.4% from 2.5% last month.
Baker-Hughes reported the U.S. rig count was up 1 rig from last week to 1,068, with oil rigs higher by 2 to 875 and gas rigs down 1 to 193.
The U.S. Rig Count is up 159 rigs from last year's count of 909, with oil rigs up 138 and gas rigs up 21. The U.S. Offshore Rig Count is down 1 rig to 19 and down 1 rig year-over-year.
Market Sentiment - Dallas Fed Robert Kaplan said market volatility is normal, and is likely consistent with the views of the rest of the Committee.
He stressed he's very sensitive to not being rigid or pre-determined about the pace at which they get to neutral. He views neutral in the 2.5%-2.75%, or 2.75%-3% range.
Kaplan has been expecting some moderation in growth and he said his job is to do economic analysis, without regard to political considerations or political influence.
He also indicated the FOMC might have to make another technical tweak to IOER in the coming months.
The iShares 20+ Year Treasury Bond ETF (TLT) traded to a high of $115.32 while closing just shy of upper resistance at $114.50-$115. Additional hurdles are at $115.50-$116 with continued closes above the latter being a more bullish development.
Rising support is at $114.25-$113.75 with a close below $113.50 signaling additional weakness and a break below the recent trading range.
RSI is back in a slight uptrend with resistance at 50.
Continued closes above this level would signal additional strength towards 55-60 and August peaks. Support is at 40-35.
Market Analysis - The Russell 3000 Index ($RUA) fell for the 7th time in 8 sessions with Friday's low tapping 1,547. Shaky and early May support at 1,545-1,540 held with risk to 1,520-1,515 and early April lows.
The February and 52-week bottom reached 1,496 and can't be ruled out on a capitulation moment.
Lowered resistance is at 1,575-1,580 with continued closes back above 1,600 being a more bullish development.
RSI is back in a downtrend with support at 25. A move below this level would be bearish signal for another trip towards 20-15 and the monthly lows.
Resistance at 35-40 with a close above the latter signaling additional strength.
The Technology Select Sector Spiders (XLK) traded down $67.11 with fresh support at $67 holding for the second time in 3 sessions. This level also represents early May resistance.
A move below $67-$66.50 would bearish a bearish signal for lower lows.
Resistance is at $69-$69.50 with a close above $70 and the 200-day moving average being a more bullish signal.
RSI is back in a downtrend with support at 35-30.
Resistance is at 40-45 with a move above the latter and the monthly peak signaling additional strength.
The percentage of S&P 500 stocks trading above the 200-day moving average closed Friday at 32.14% with the low reaching 29.56%. February 2016 support at 32%-30% held with risk to 20%-15% and January 2016 lows on a move below the latter.
Resistance is at 35%-38% with continued closes above 40% signaling additional strength.
The percentage of Nasdaq 100 stocks trading above the 50-day moving average closed Friday at 8.73% with the low reaching 6.79%.
February support at 7.5%-5% held and remains in play on continued weakness. There is risk to the sub 2% level and January 2016 lows on continued oversold weakness.
Resistance is at 10%-15% with continued closes above 16.5% signaling additional strength and being a more bullish development.
All the best,
Roger Scott