U.S. markets were choppy throughout Wednesday’s action following President Trump’s State of the Union Address that he delivered Tuesday night.
A heavy heavy dose of mixed earnings weighed on sentiment while a positive spin on China trade talks by Treasury Secretary Steven Mnuchin helped limit losses.
Mnuchin confirmed reports that he, USTR’s Lighthizer and others will head to Beijing next week to continue high level talks after progress on enforcement issues.
Mnuchin also added said the dinner with Trump, Powell and Clarida was very productive and engaged in a wide range of topics.
The Nasdaq fell 0.5% after testing an opening low of 7,346.
Upper support at 7,350-7,300 was tripped but held with a close below the latter signaling a possible near-term top.
The Russell 2000 was lower by 0.2% following the morning dip to 1,511.
Fresh and upper support at 1,510-1,500 held with a move below the latter opening up risk towards 1,485-1,475.
The S&P 500 also slipped 0.2% after trading to a low of 2,724 shortly after the opening bell. Current and upper support at 2,725-2,700 was breached but held.
The Dow declined 0.1% following intraday pullback to 25,312.
Fresh and upper support at 25,250-25,000 easily held with a close below the latter and the 200-day moving average being a slightly bearish development.
Healthcare and Technology showed sector strength after rising 0.5% and 0.3%, respectively.
Industrials and Consumer Staples edged up 0.03% and 0.02% to round out the winners.
Communications Services sank 2.2% to easily pace sector weakness.
Real Estate and Energy fell 0.8% and 0.7%.
Global Economy – European markets settled mixed following more signs of economic distress in the eurozone.
Germany’s DAX 30 gave back 0.4% while France’s CAC 40 and UK’s FTSE 100 slipped 0.1%. The Belgium20 rose 0.5% and the Stoxx 600 Europe added 0.2%.
German manufacturing orders slumped in December as total manufacturing orders declined 1.6% from November. Expectations were for a rise of 0.3%.
Asian markets closed higher in limited action as South Korea’s Kospi, Hong Kong’s Hang Seng and China’s Shanghai remained closed for lunar new year holidays.
Australia’s S&P/ASX 200 advanced 0.3% while Japan’s Nikkei climbed 0.1%.
The U.S. November trade deficit narrowed 11.5% to $49.3 billion after widening to $55.7 billion in October. Exports dipped 0.6% to $209.9 billion versus October’s $211.2 billion. Imports dropped 2.9% to $259.2 billion from $266.9 billion.
The U.S. productivity report report was very limited due to the government shutdown. Nonfarm employee hours slowed to a 1.9% pace last quarter, from 2.3% in Q3.
Manufacturing output/hour dipped to a 0.7% pace, less than half of the 1.5% clip from Q3. Manufacturing output slid to 2.8% in Q4 from 3.6%.
Manufacturing employee hours were steady at 2.1%. Analysts did get revisions, however, and Q3 productivity growth was revised to 2.2% from 2.3%, with analysts now expecting 2.4% productivity growth in Q4, down slightly from 2.5%.
The BLS output measure for Q3 was trimmed to 4% from 4.1%, as expected, and analysts still assume 4% growth in Q4. Hours-worked growth was trimmed to 1.7% from 1.8% in Q3, followed by 1.6% growth in Q4.
Hourly compensation growth was boosted to 3.2% from 3.1% in Q3, and analysts expect 3.5% growth in Q4.
Unit labor cost growth was left unchanged at 0.9% in Q3, to be followed by an expected 1.2% clip in Q4.
For annual data, analysts expect productivity growth of 1.4% in 2018 after gains of 1.1% in 2017 and 0.1% in 2016.
MBA Mortgage Applications Composite Index were down -2.5% for the week of February 1st.
Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) closed higher for the 2nd-straight session after reaching an intraday peak of $121.41. Lower resistance at $121-$121.50 was cleared and held into the closing bell.
Continued closes back above $122 would be a more bullish development.
Rising support is at $121-$120.50.
Market Analysis – The Spider Small-Cap 600 ETF (SLY) fell for the first time in 3 sessions following the backtest to $66.82. Fresh and upper support at $67-$66.50 was breached but held.
A move below $66 would be a slightly bearish signal for lower lows.
Current resistance is at $67.50-$68.
Continued closes above the latter and late November resistance would be a bullish development for a possible run towards $70 and the 200-day moving average.
RSI is flatlining with August resistance at 70.
A close above this level gets 75 and June 2018 peaks in play. Support is at 65-60 with a close below the latter signaling additional weakness.
The Financial Select Sector Spiders (XLF) has been in a mini trading range between $25.75-$26.25 over the past 4 sessions and a slightly extended range down to $25.50 since mid-January.
Wednesday’s low tapped $25.97 with upper support at $25.75-$25.50 easily holding.
A close below the latter would be a bearish signal for lower lows.
Near-term resistance is at $26-$26.25.
Continued closes above the latter would be a bullish signal for a possible run at $26.50-$26.75 and the 200-day moving average.
RSI is in a slight downtrend with support at 60.
A move below this level opens up risk towards 55-50 with the latter representing major support throughout January. Resistance is at 65-70.
All the best,
Roger Scott.