U.S. markets continued their strong start for the year following Friday’s rally that extend the overall winning streak to 8-straight weeks. Ongoing progress regarding trade talks with China help fuel the breakout to prior November highs and the negotiations now moving to Washington D.C. next week.
President Trump said the trade talks with China are going very well while adding that the U.S. is a lot closer than we ever were to having a real trade deal with China.
Trump also said he expects trade between the U.S. and the U.K. will also be significantly increasing.
The Dow zoomed 1.7% after closing a half-point of the session high of 25,883.
Fresh and lower resistance from late November at 25,800-26,000 was cleared and held with a move above the latter getting 26,250-26,500 in play.
The S&P 500 soared 1.1% following the late day run to 2,775.
Lower resistance from late November at 2,775-2,800 held into the closing bell with a move above the latter getting 2,825-2,850 in the mix.
For the week, the Dow gained 3.1% and the S&P was higher by 2.5%.
The Russell 2000 jumped 1.6% after testing a high of 1,570.
Fresh and lower resistance at 1,570-1,580 held into the close by a point with additional hurdles at 1,590-1,600 and the 200-day moving average.
The Nasdaq advanced 0.6% following the late session push to 7,477.
Major resistance at 7,450 and the 200-day moving average was cleared and held to set up a possible run towards 7,525-7,600 on continued momentum.
Tech was up 2.4% for the week while the small-caps rocketed 4.2% higher.
Financials led sector strength after surging 2.1%.
Energy and Healthcare rose 1.6% and 1.5%, respectively. There were no sector laggards.
For the week, Energy surged 2.9% while Industrial and Technology added 2.4% and 2.2%, respectively. There no were no sector laggards
The Q4 results is rapidly coming to a close with results from nearly 80% of the S&P 500 members having reported numbers.
Total earnings for these index members are up 12.9% from the same period last year on 7.6% higher revenues, with 66.5% beating EPS estimates and 62.4% topping revenue estimates.
Q4 as a whole, combining the actual results from the nearly 400 index members that have reported with estimates for the still-to-come companies, total earnings for the S&P 500 index are expected to be up 13.4% from the same period last year on 6.7% higher revenues.
This would follow the 25.7% earnings growth on 8.5% higher revenues from Q3 2018.
Earnings growth is expected to be in double digits for a number of sectors, with Energy (100% growth), Finance (14%), Construction (22%) and Transportation (29%) the strongest.
Tech sector earnings are on track to decelerate meaningfully in Q4, with expectations at 7.6%, after back-to-back quarters of very strong growth.
Four sectors are expected to have lower earnings in Q4 relative to the year-earlier period, namely Conglomerates (-7.4%), Autos (-9.3%), Utilities (-7.8%) and Basic Materials (-1.5%).
Global Economy – European markets closed higher on news long-term loans from the European Central Bank to euro zone banks were being discussed.
Germany’s DAX 30 rallied 1.9% and France’s CAC 40 rose 1.8%. The Stoxx 600 Europe was up 1.4% and the Belgium20 advanced 1.3%. UK’s FTSE 100 was up 0.6%.
Asian markets ended the week mostly lower following disappointing economic news out of China.
Hong Kong’s Hang Seng sank 1.9% while China’s Shanghai dropped 1.4%. South Korea’s Kospi stumbled 1.3% and Japan’s Nikkei fell 1.1%. Australia’s S&P/ASX 200 edged up 0.1%.
China Consumer Price Index for January came in 1.7% higher, missing expectations for a rise to 1.9% on year.
The Empire State Manufacturing Survey rebounded 4.9 points to 8.8 in February after January’s 7.6 point tumble to 3.9 with the latter a 20-month low.
The employment component fell to 4.1 from 7.4 while the workweek dropped to 2.5 from 6.8. New orders improved to 7.5 from 3.5. Prices paid declined to 27.1 from 35.9, but prices received rose to 22.9 from 13.1.
The 6-month ahead general business outlook index jumped to 32.3 from 17.8, with employment at 19.1 from 8.5.
The outlook index for new orders came in at 35.7, up from 19.5, with prices paid at 37.1 from 47.6, and prices received at 30.7 from 28.3. Capital spending rose to 29.3 from 17.9.
Import prices fell 0.5% in January with Export prices dropping 0.6%.
December’s 1% decline was not revised, though November was nudged up to -1.7% from -1.9%. On a 12-month basis, import prices weakened to -1.7% year-over-year versus -0.5%, and export prices sank to a -0.2% year-over-year pace from 1.1%.
Industrial Production declined 0.6% in January, with capacity utilization sliding to 78.2%, both sharply disappointing estimates. All the weakness was in manufacturing, which dropped 0.9% from the prior 0.8% gain.
Consumer Sentiment popped up 4.3 points to 95.5, topping forecasts for a print of 93. Most of the strength was in the expectations index which climbed to 86.2 from 79.9. The current conditions index rose to 110 from 108.8.
The 12-month inflation gauge slipped to 2.5% versus 2.7% while the 5-year gauge showed a slowing to 2.3% from 2.6%.
Baker-Hughes Hughes reported the U.S. rig count was up 2 rigs from last week to 1,051 rigs, with oil rigs up 3 to 857 and gas rigs down 1 to 194. The U.S. Rig Count is up 76 rigs from last year’s count of 975, with oil rigs up 59 and gas rigs up 17. The U.S.
Offshore Rig Count is up 2 rigs to 21 and up 3 rigs year-over-year.
Market Sentiment – Atlanta Fed Raphael Bostic said he is projecting one more hike this year, and one in 2020, as well. His estimate for the neutral range is in the 2.75%-3% range and thinks analysts are a little short of that.
However, he is in no hurry to get there and would error on the side of being slightly accommodative.
Bostic doesn’t have a time-frame or a number in mind on balance sheet normalization and wants the end result to be sustainable, but added it needs to be larger than it was pre-crisis.
His growth outlook is still above trend.
San Francisco Fed Mary Daly said the case for a rate increase isn’t there and that assumes that the economy evolves as she expects with 2% growth and 1.9% inflation, with no sense of an acceleration in the latter.
She is not ready to make a firm call on the policy path, saying she thinks it’s too early to judge.
Daly supports the wait-and-see, patient approach given the myriad uncertainties and doesn’t want the Fed to get ahead of itself. The policy rate is a stone’s throw from neutral, she added, and believes it is a good time to be patient.
The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 2nd-straight session after trading to a high of $122.02. Fresh and lower resistance at $122-$122.50 was cleared but held with a move above the latter being a more bullish signal for higher highs.
Support remains at $121.50-$121 with a move below the latter signaling additional weakness towards $120 and the 50-day moving average.
RSI is back in an uptrend with resistance at 60-65.
Continued closes above the latter would be a bullish signal for a run towards 70-75 and early January peaks. Support is at 55-50 with the latter holding since mid-November.
Market Analysis – The Spiders Dow Jones Industrial Average ETF (DIA) closed higher for the 3rd time in 4 sessions after reaching a peak of $258.68 into the closing bell.
Early November resistance at $259-$259.50 held. Continued closes above the $260 level gets $262.50-$265 and possible all-time highs back in focus.
Rising support is at $258-$257.50 with a move below $255 being a slightly bearish signal.
RSI is flatlining just above the 70 level with near-term resistance at 75-80 and the latter representing the September peak.
Support is at 65. A move below this level would signal additional weakness towards 60-55.
The Consumer Discretionary Select Spiders (XLY) closed up for the 4th time in 5 sessions after testing an intraday high of $110.29. Lower resistance at $110-$110.50 was cleared and held.
A move above the latter would be a bullish signal that could lead to a run towards $111.50-$112 and early November highs.
Current support is at $109.50-$109. A move below the latter opens up risk towards $108.50-$108 and the 200-day moving average.
RSI is back in a slight uptrend with resistance at 65.
A close above this level would signal additional strength towards 70-75 and August/ September highs. Support is at 60-55.
The percentage of Nasdaq 100 stocks trading above the 200-day moving average closed Friday at 58.25% with the session high reaching 61.16%.
Lower resistance at 60%-62.5% held. A move above the latter would be a bullish development and signal additional strength towards 65%-67.5% with the early month high at 66.99%.
August resistance levels are in the 70%-72.5% range. Support is at 57.5%-55% with risk towards 52.5%-50% on a move below the former. The monthly low is at 49.51%.
The percentage of S&P 500 stocks trading above the 50-day moving average settled at 91.26% with the session high at 91.48%. Upper July 2016 resistance at 85%-90% was cleared and held.
There is a chance another leg higher could lead to a run at 92.5%-95% and levels last seen in March/ April 2016. Overbought levels are still in play with current support at 85%-80% and the last week low at 79.40%.
A move below 77.5% would be a bearish signal for additional weakness towards the 75%-72.5% area.
All the best,
Roger Scott.