U.S. markets showed strength throughout Tuesday’s session despite weaker-than-expected economic news. The small-caps led the way higher with Financial stocks rebounding following the recent worries over the yield curve.
Volatility eased while closing back below key levels of support and is signaling a possible return of market momentum.
The Russell 2000 rallied 1% following the intraday push to 1,535. Prior and lower resistance at 1,535-1,550 on the close back above the 50-day moving average.
The Nasdaq rose 0.7% after tapping a high of 7,738 to snap a 2-session slide.
Lower resistance at 7,700-7,750 was breached but held with a close above 7,800 being a more bullish signal.
The S&P 500 also advanced 0.7% following the run to 2,829. Near-term resistance at 2,825-2,850 was cleared but held with continued closes above the latter signaling additional momentum.
The Dow rose 0.6% after reaching an intraday peak of 25,796.
Lower resistance at 25,750-26,000 held with continued closes above the latter being a more bullish development.
Energy and Financials were sector leaders after jumping 1.4% and 1.2%, respectively.
Consumer Staples advanced 0.9% while Industrials, Healthcare and Utilities were higher by 0.7%.
There were no sector laggards.
Global Economy – European markets closed higher after UK lawmakers voted to seize control of the Brexit process, taking control away from Prime Minister Theresa May.
The Belgium20 and France’s CAC 40 advanced 0.9% while the Stoxx 600 Europe rose 0.8%. Germany’s DAX 30 was up 0.6% and UK’s FTSE 100 gained 0.3%.
France confirmed GDP growth of 0.3% in the final three months of last, as the economy grew 1.6% over the course of 2018, but below the government’s forecast of 1.7%.
Asian markets rebound from the start of the week selloff to settle mostly higher.
Japan’s Nikkei jumped 2.2% while South Korea’s Kospi and Hong Kong’s Hang Seng climbed 0.2%. Australia’s S&P/ASX 200 edged up 0.1%. China’s Shanghai stumbled 1.5%.
Housing Starts dropped 8.7% to 1,162,000 in February, below forecasts of 1,210,000. All the weakness was in single family starts which sank 17% following January’s 19.2% rebound.
Multi family starts rallied 17.8% versus the prior 7.1% decline. Regionally, starts declined in three of the four areas with the Northeast down 29.5%, the South off 6.8%, the West 18.9% lower, while the Midwest rose 26.8%. Building permits dropped 1.6% to 1,296,000 after falling 0.7% to 1,317,000 previously.
The S&P Corelogic Case-Shiller home price index for January dipped 0.22% to 212.41 for the 20-city index versus expectations for a flat reading.
On a 12-month basis, the index slowed to 3.58% year-over-year versus 4.14%.
The 10-city composite index slipped 0.26% to 225.93. Compared to last year, the price index posted a 3.15% year-over-year pace versus 3.72%. All 20 cities covered were higher on a 12-month basis, led by Las Vgas (10.49%) and Phoenix (7.48%).
FHFA House Price Index rose 0.6% to 271.95 in January, topping estimates for a rise of 0.1%.
Regionally, 8 of the 9 posted gains, led by the North Central (1.1%). The only decline was New England (-0.7%).
The Richmond Fed Manufacturing Index fell 6 points to 10 in March, missing forecasts for a print of 12.
The employment index rose to 23 from 15, with wages rising to 33 from 29, while the workweek fell to 5 from 17.
New order volume slumped to 9 from 19. Prices paid rose at a 2.84% rate from 3.03%, with prices received at 2.07% from 2.06%. The 6-month shipment index improved to 40 from 32.
The future employment gauge was at 13 from 15, with new order volume at 36 from 30, while prices paid were 2.10% from 2.17%, and prices received at 1.76% from 1.81%.
Consumer Confidence declined 7.3 points to 124.1 in March, missing expectations of 133. The present situation index fell to 160.6 from 172.8 while the expectations index slid to 99.8 from 103.8.
The labor differential declined to 28.3 from 34. The 12-month inflation gauge edged up to 4.5% versus 4.3%.
Chain Store Sales bounced 3% in the week ending March 23rd, erasing the 2.6% slump from the prior week.
However, the 12-month growth pace slowed to 0.1% year-over-year versus 1.5% previously.
Redbook Store Sales were up 5.3% for the year in the week ending March 23rd.
Market Sentiment – Chicago Fed Charles Evans, speaking from the CS investment conference in Hong Kong, said the impact of China’s slowdown on Fed policy depends upon its scale.
From Europe, Philadelphia Fed Patrick Harker said he was not supportive of a December move and should leave room in the balance sheet for a twist, otherwise largely echoing his remarks from the day prior.
The iShares 20+ Year Treasury Bond ETF (TLT) fell for the first time in 5 sessions following the backtest to $124.62. Upper support at $124.50-$124 held.
A move below the latter would be a slightly bearish signal with risk to $123-$122.50.
Current resistance remains at $125-$125.50.
Market Analysis – The Invesco QQQ Trust (QQQ) snapped a 2-session slide after tapping a high of $180.69. Near-term resistance at $179.50-$180 was challenged but held. Continued closes back above the latter could lead to a retest towards $182-$182.50.
Current support is at $178-$177.50.
A move below the latter would signal additional weakness towards $175.50-$175. The 50-day moving average remains on track to clear the 200-day moving average. This would form a golden cross, if completed, and is typically a bullish signal for higher highs.
RSI is back in an uptrend with resistance at 65-70.
Continued closes above the latter would signal additional momentum towards 75-80 and January 2018 highs. Support is at 60 with a close below this level signaling additional weakness.
The Materials Select Sector (XLB) was up for the first time in 3 sessions after trading to a high of $54.73. Near-term resistance at $54.50-$55 was split on the close above the former.
Continued closes back above the latter and the 200-day moving average would signal a possible return of momentum.
Current support is at $54 and the 50-day moving average.
A close below this level would be a slightly bearish signal with risk towards $53-$52.50.
RSI is back in a slight uptrend with resistance at 50.
Continued closes above this level would be a bullish signal for additional strength towards 55-60. Support is at 45-40.
All the best,
Roger Scott.