U.S. markets were sluggish throughout Tuesday’s session after showing weakness in the morning and slight strength in the afternoon.
The tight action extended ongoing trading ranges for the major indexes as they now enter a 3rd-straight week of consolidation.
Economic news was better-than-expected along with ongoing 4Q earnings from a number of companies in the retail space.
Volatility was slightly higher but continues to hold key levels of resistance and support in a wider trading range that has been ongoing since mid-February.
The Russell 2000 fell 0.5% following the intraday pullback to 1,567.
Near-term and upper support at 1,575-1,560 was breached and failed to hold with a close below 1,550 being a bearish development.
The Dow slipped 0.1% after trading in a 152-point range while testing a low of 25,725.
Current and upper support at 25,750-25,500 was breached but held on the 2nd-straight close above the 25,800 level.
The S&P 500 edged down 0.1% after failing near-term resistance at 2,800.
Current and upper support at 2,775-2,750 easily held on the morning pullback to 2,782 with a close below the latter and the 200-day moving average being a slightly bearish development.
The Nasdaq gave was down a point, or 0.02% despite making a late day run to 7,598.
Near-term resistance at 7,600-7,650 held for the 3rd-straight session with continued closes above the former being a slightly bullish signal.
Communication Services led sector with a gain 0.6%. Real Estate and Consumer Discretionary rose 0.3% to round out the winners.
Industrials led sector weakness after giving back 0.6%. Material were off 0.5% while Financials fell 0.4%.
Global Economy – European markets settled mostly higher following positive economic news out of the United Kingdom that showed a modest increase in PMI activity.
UK’s FTSE 100 rose 0.7% while the Stoxx 600 Europe, France’s CAC 40 and Germany’s DAX 30 edged up 0.2%. The Belgium20 dipped a point, or 0.03%.
U.K. Services PMI was at 51.3, above forecasts of 49.9.
Asian markets closed mixed after China’s growth forecast dented the outlook for the region, and presented fresh downside risk for the global growth outlook as well.
China’s Shanghai rallied 0.9% and Hong Kong’s Hang Seng edged up 2 points, or 0.01%. South Korea’s Kospi fell 0.5% and Japan’s Nikkei declined 0.4%. Australia’s S&P/ASX 200 was lower by 0.3%.
Chinese Premier Li Keqiang said Tuesday that the government aims for the economy to grow in a range of 6% to 6.5% in 2019, compared with last year’s goal of about 6.5%.
He outlined plans to provide foreign investors greater access to China And said the government will also increase spending and implement tax cuts for business in an effort to prop up the economy.
China set the fiscal budget deficit at 2.76 trillion yuan ($411.5 billion) in 2019, or about 2.8% of the nation’s gross domestic product.
The Ministry of Finance also vowed to roll out bigger tax cut measures this year.
U.S. chain store sales bounced 0.3% in the week ending March 2nd, following the 1.6% drop in the prior week. The 12-month pace accelerated to 2.3% year-over-year versus 1.1%.
Redbook Store Sales up 4.2% for the year in the week ending March 2nd.
PMI Services Index rose 1.8 points to 56 in February, just below expectations of 56.2, but topping January’s print of 54.2.
The composite index increased 1.1 points to 55.5 for February after holding steady at 54.4 in January. Employment rose to 55.2 from 53.2 previously and is the best since September.
New Home Sales climbed 3.7% to 621,000 in December, topping estimates of 570,000 for the month.
Regionally, sales rose in the Northeast (44.8%), in the South (5%), and in the West (1.4%), but declined in the Midwest (-15.3%). The months’ supply of homes dipped to 6.6 from 6.7.
The median sales price was up 5% to $318,600 The 12-month pace of contraction slowed to -7.2% year-over-year versus -11.6%, previously.
ISM Non-Manufacturing Index rebounded 3 points to 59.7 in February, topping forecasts of 57.2. This represented the best level since September and is close to a 20-year high.
New orders climbed 7.5 points to 65.2 while new export orders gained 4.5 points to 55. Imports declined 3.5 points to 48.5 while prices paid fell 5 points to 54.4.
The employment sub-index slid 2.6 points to 55.2 after rising 1.2 points to 57.8 previously.
The Treasury Budget deficit for the first four months of this budget year, which began October 1st, totaled $310.3 billion, up from a deficit of $175.7 billion in the same period a year ago. The surplus in January was $8.7 billion.
Market Sentiment – Boston Fed Eric Rosengren believes it will be several meetings before the Fed has a clear view of risks. His outlook is for healthy growth this year and sees wage pressure rising, but with inflation quite well behaved.
He stated the markets are pricing in somewhat elevated risk, even as some of the concerns from late last year have diminished, and these heightened risks to the outlook justify the FOMC’s pause in rate hikes.
Dallas Fed Robert Kaplan warned that rising corporate debt was one reason for Fed patience on interest rates, as high levels of corporate borrowing could make an economic slowdown worse.
He suggested that high levels of corporate debt could make the economy more sensitive in the event of a slowdown, and that he wouldn’t want to back away from strong bank stress testing.
Minneapolis Fed Kashkari doesn’t think full employment has been reached yet in the U.S. as millions continue to come off the sidelines and he’s doing everything to avoid raising rates that would end the expansion.
He sees modest growth ahead and no recession on the horizon.
Kashkari said big banks have a smaller buffer than small banks and need more capital.
He added Fed is watching Brexit and where the Eurozone goes, as these could have impact on the U.S. economy, along with uncertainty over trade with China.
The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 2nd-straight session after trading to a late day peak of $119.87.
Resistance at $120-$120.50 held with a close above $120.75 and the 50-day moving average signaling a possible return of momentum.
Support is trying to move up to remains at $119.50-$119. A close below the latter reopens risk towards $118-$117.50 and the 200-day moving average in play.
Market Analysis – The Spider Small-Cap 600 ETF (SLY) was lower for the 2nd-straight session and 3rd time in the past 4 sessions following the morning fade to $68.53. Current and upper support at $68.50-$68 held with a close below the latter being a slightly bearish signal.
Near-term resistance is at $69-$69.50. A close above $70 and the 200-day moving average would be a more bullish development for higher highs.
RSI is in a downtrend with support is at 55-50 and the latter representing the early January breakout above this level.
A close below the latter would be a bearish signal for additional weakness. Resistance is at 60-65.
The Industrials Select Sector Spider (XLI) was lower for the 2nd-straight session after testing an intraday low of $75.56.
Current support at $75.50-$75 held with a move below the latter opening up risk towards $74-$73.50.
Near-term resistance is at $76-$76.50. Continued closes above $77 and the late February high of $77.13 would signal a return of momentum.
RSI is in a downtrend with support is at 60.
A move below this level would be a slightly bearish signal with risk towards 55-50. Resistance is at 65-70.
All the best,