U.S. markets opened higher and held steady throughout the first half of action despite weaker-than expected economic news and heightened geopolitical concerns.

The back-and-forth rhetoric between North Korea and the U.S. was largely ignored as the major indexes showed renewed momentum into the closing bell. Volatility was contained as resistance held with the small-caps breaking out to a fresh all-time high.

The Russell 2000 surged 1% after trading to a fresh all-time high of 1,620 and topping it’s previous January peak of 1,615. The Nasdaq jumped 0.6% after testing a high of 7,413 but missed holding the 7,400 by a couple points.

The S&P 500 gained 0.4% after making a run to 2,727 to closer higher for the 5th-time in 6 sessions.

The Dow was up for the 9th-time in 10 sessions after climbing 0.3% and pushing a high of 24,801.

Materials and Consumer Discretionary were sector standouts after rising 1.2% and 0.8%. Consumer Staples and Health Care rose 0.7% and 0.6%.

Utilities and Real Estate and Health Care were the only sector laggards after declining 0.8% and 0.3%, respectively.

Global Economy – European markets closed mostly higher despite increased political risks in Italy after the Five Star Party discussed a potential government debt write-down of 250 billion euros from the ECB.

France’s CAC 40 gained 0.3% while UK’s FTSE 100, the Stoxx 600 Europe, and Germany’s DAX 30 added 0.2%. The Belgium20 declined 0.5%.

Asian markets settled mixed as concerns over North Korea returned after Kim Jong Un said he might cancel next month’s summit meeting with President Trump.

China’s Shanghai sank 0.7% and Japan’s Nikkei fell 0.4%. Hong Kong’s Hang Seng slipped 0.1%.

Australia’s S&P/ASX 200 rose 0.2% and South Korea’s Kospi gained 0.1%.

China April new home prices rose 0.57%, the largest increase in 10 months.

Japan Q1 GDP fell 0.6%, weaker than expectations for a dip of 0.1% and the steepest pace of contraction in over 2 years. The Q1 GDP deflator rose 0.5% year-over-year, topping forecasts of 0.3%.

Q1 GDP private consumption was unchanged and matched expectations. Q1 GDP business spending unexpectedly slipped 0.1%, weaker than expectations for a gain of 0.4%.

MBA Mortgage Applications sank 2.7% along with a 2.1% decline in the purchase index and a 3.8% drop in the refinancing index for the week ending May 11th.

The average 30-year fixed mortgage rate fell 1 basis point to 4.77%. Refinancing applications hit their lowest level since August of 2008.

Atlantic Fed Business Inflation Expectations for May was up 2% year-over-year.

Atlanta Fed’s Q2 GDPNow estimate was unchanged at 4.1%. The nowcast for second-quarter real private fixed investment rose from from 5.2% to 5.9%.

Housing Starts fell 3.7% to a 1,287,000 rate in April, a steeper decline from the 1,325,000 rate that had been expected. The real story is the lack of supply which is constraining the housing market.

Building permits declined 1.8% last month to a 1,352,000 pace, which was roughly in-line with estimates.

Industrial Production increased 0.7% in April, topping expectations of 0.5%, with capacity at 78% and below forecasts for 78.4%.

Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) fell for a 3rd-straight session after testing a low of $116.79. Upper support at $117-$116.50 was breached and failed to hold into the closing bell.

A move below the latter could lead to a retest to the $116 area and February lows. Lowered resistance is at $117.25-$117.75.

Market Analysis – The Russell 3000 Index ($RUA) has been in a mini trading range between 1,600-1,620 over the past five sessions with today’s high reaching the latter.

Continued closes above resistance at 1,620-1,625 would be a bullish development for a possible push towards 1,640-1,650. Support is at 1,605-1,600 with a move the latter likely leading to a continued backtest towards 1,590-1,580 and the 50-day moving average.

RSI is trying to clear and hold multi-month resistance at 60 with continued closes above this level leading towards a possible run at 65-70. Support is at 55-50.

The Real Estate Select Sector Spider (XLRE) declined for a 4th-straight session after testing a low of $30.64.

Support at $30.50-$30.25 easily held but the 2nd-straight close below the 50-day moving average was a slightly bearish signal. Resistance is at $31-$31.25.

RSI is in a downtrend with support at 40.

A close below this level would signal additional weakness and a possible backtest to 30 and January/ February lows. Resistance is at 50.

All the best,
Roger Scott