U.S. markets showed continued strength to start the week with January and record highs on the verge of triggering.
News of China officials heading to the White house for trade talks this week helped momentum although volume was light.
Tech and the small-caps did lose some strength in the morning waning minutes of trade with headlines of President Donald Trump criticizing the Federal Reserve’s plans to raise interest rates while accusing China of manipulating its currency.
Tech lagged for the session while volatility stayed steady following the lack of major economic news.
The Dow advanced 0.4% after making an intraday push to 25,790.
Fresh and lower resistance at 25,800-26,000 held with a close above the latter getting the blue-chips within 2% of its all-time top.
The Russell 2000 added 0.3% after trading to a second half peak of 1,701.
Lower resistance at 1,700-1,710 held with the small-caps coming within 8 points of setting fresh record highs.
The S&P 500 was up 0.2% following the run to 2,859. Upper resistance at 2,850-2,860 held with additional hurdles at 2,870-2875 and the record at 2,872.
The Nasdaq was the weakest link but still climbed 0.1% despite the first half fade to 7,787.
It was a higher low than Friday’s session with the index holding the 7,800 level for the 2nd-straight session.
Energy, Industrials, Materials and Consumer Discretionary led sector strength after rising 0.7%.
Utilities paced sector losers after falling 0.4%. Technology and Consumer Staples were off 0.2% and 0.1%.
Global Economy – European markets were higher despite concern over slower growth from Germany for the current quarter.
Germany’s DAX 30 surged 1% and France’s CAC 40 rallied 0.7%.
The Stoxx 600 Europe jumped 0.6% and the Belgium20 gained 0.5%. UK’s FTSE 100 rose 0.4%.
The Bundesbank stated German Q3 growth could end up being somewhat slower than the average for the first half of the year due to weaker factory orders and as automakers adjust to new emission targets.
However, the bank also said private consumption and a strong labor market should keep the country on a sound growth path.
German July PPI rose 0.2% and 3% year-over-year, matching forecasts.
UK August Rightmove housing prices fell 2.3% to match the December 2017 pullback as the biggest drop in prices in over 5 years.
Asian markets were mostly higher as the Chinese yuan climbed to a 1-week high against the dollar.
The yuan has rallying in recent sessions after the PBOC raised its daily reference rate for the yuan.
Hong Kong’s Hang Seng zoomed 1.4% and China’s Shanghai surged 1.1%.
Australia’s S&P/ASX 200 edged up 0.1% and South Korea’s Kospi was up less than a point, or 0.04%.
Japan’s Nikkei declined 0.3%.
There were no major economic reports on Monday.
Market Sentiment – Atlanta Fed Raphael Bostic said the scale of U.S. debt should inform fiscal policy makers moving forward.
He views uncertainty over trade as the chief downside risk for the U.S. economy.
He also indicated that so far few companies are putting to work the proceeds of the tax cuts in way that will be transformative for U.S. productivity.
Bostic noted that the proposal to allow only semi-annual reporting by public companies works both way, as investors want more information, but it also allows more longer-term focus by the companies.
The flattening yield curve does worry the Fed, he went to say, though its not clear that the inverted yield curve is a signal, and only one, that does not guarantee a recession will occur.
He said he can’t imagine the Fed will endorse blockchain-based currency until it is possible to distinguish its use for illegal versus legal activities.
And finally, he believes 3 rate hikes for the year is still the baseline, while there will be more reshuffling of global capital allocation as central banks move policy back to a more normal setting.
He also said that the Turkish lira’s fall caught policymakers by surprise and the currency is being examined for its implications.
The iShares 20+ Year Treasury Bond ETF (TLT) made a strong push to $121.91 shortly after the open with early July and lower resistance at $121.75-$122 holding.
A move above the latter could lead to a near-term run north of $122.50 and last month’s highs.
Rising support is at $121.50-$121.25.
A move below $121 would likely signal a continued backtest towards $120.50-$120.25 and the 50/ 200-day moving averages
Market Analysis – The Russell 3000 Index ($RUA) held positive territory throughout Monday’s action with the high tapping 1,698.
Resistance is at 1,700 and the August 9th record high held with continued closes above the latter keeping blue-sky territory open towards 1,715-1,725.
Fresh support is at 1,690-1,685 held with a move below 1,680 signaling another possible near-term and double-top.
RSI is back in an uptrend after clearing lower support at 60-65.
A move above the latter would be a bullish signal for additional strength. Support is at 55-50.
The Real Estate Select Sector Spider (XLRE) was up for the 5th-straight session after trading to a new 52-week peak of $34.13.
We mentioned in July the golden cross that had formed, with the 50-day moving average clearing the 200-day moving average earlier in the month typically leads to higher highs.
Fresh resistance at $34-$34.25 held with a move above the latter being a continued bullish development.
Rising support is at $33.75-$33.50. A move above the latter would likely signal a short-term top.
RSI is trying to clear June and July resistance at 70. Continued closes above this level would signal additional strength for a possible run to 75 but also representing slightly overbought levels.
Support is at 65-60 with a close below the latter being a warning sign for lower lows.
All the best,
Roger Scott.