The non stop rally of 2019 finally hit some road blocks this past week. The utter glee of a potential China-U.S. trade deal wasn’t enough for the market to rally on the same old news for yet another week; it has essentially rallied on that news for nearly a month. “Patience” still makes everyone happy – but a dismal employment report Friday, the European Central Bank talking about more stimulus, along with horrid export data out of China had people a tad worried.
The ECB announced new measures to support a slowing economy, including a round of long-term loans to European financial institutions, while issuing a surprise pledge to hold off on any interest-rate increases until at least the end of the year.
China reported a 20% drop in February exports after a 9.1% gain in January. Officials blamed the plunge on sagging demand and some distortions from the Lunar New Year holiday. But economists said that even if those two months are added together, the data looked weak.
As we have been saying for about 6 months (lead by housing) it does seem the economic data is starting to get more sluggish and one wonders when the market sees that as a negative vs a positive i.e. the Fed will push up stock prices if we slow. Looking out 2 years it does appear we are about to get hit with another flood of liquidity from central banks!
An avalanche of economic news this week – some of the highlights:
The Beige Book’s showed 10 of the central bank’s 12 districts seeing “slight-to-moderate” growth in late January and February. The partial government resulted in slower activity in about half of the districts, affecting a range of sectors, including retail, auto sales, real estate, restaurants, and manufacturing, according to the central bank.
“Trade wars are easy” and such….
The annual U.S. trade deficit soared to a 10-year high in 2018 of $621 billion, the Commerce Department said. The deficit jumped nearly 19% in December to a seasonally adjusted $59.8 billion, according to a government report that was delayed by the government shutdown earlier in the year. That’s the single biggest monthly gap since October 2008.
The trade deficit with China shows no sign of shrinking. The U.S. ran a $419 billion deficit in goods with China in 2018, up almost 12% from a year earlier, based on U.S. Census figures. China accounted for almost half of the U.S. deficit in goods in 2018.
The Labor Department announced the U.S. economy added just 20,000 new jobs in February, well below the 178,000 forecast by economists. Obviously a bit of a shock number but with the government shutdown, and wacky random outcomes month to month we will see what the revisions are down the road. Construction was a big outlier to the downside which could be weather related. The unemployment rate fell to 3.8% from 4%, while workers saw an 11 cent-an-hour increase in average hourly earnings, the largest gain since the end of the 2009 recession.
For the week, the S&P 500 shed 2.2% and the NASDAQ 2.5%.
We mentioned the breakout in Chinese stocks in last week’s recap – that continued…until Friday’s tragic reversal.
Here is the 5 day weekly intraday chart of the S&P 500 … not via Jill Mislinski.
The week ahead…
The market rally of the Federal Reserve (“patience”) has ripped off the heads of poor bears yet again. Just in time for a pullback. So we will see if this is some modest consolidation or one of those “the biggest rallies often occur within the context of downturns”. Put another way, how many more times can we rally on Federal Reserve juice and the impending China-U.S. trade deal in the face of a very obvious slowing global economy.
Retail sales will be released this week – considering the dismal report last month, expect an upward revision and the short term oversold market can rally on that!
A lot of talk of the 10 year bull market will also ensue this week!
Short term: The S&P 500 at this point topped at our trend line which connected major lows in the index. That’s pretty fascinating.
The Russell 2000 is was rejected by the 200 day moving average.
The NYSE McClellan Oscillator now calls for a cautious stance. In fact we are short term oversold to begin the week.
Long term: If the S&P 500 is rejected at this level it might be the first long term stand bears have made in years.
Charts of interest / Big Movers:
Monday, shares of Children’s Place (PLCE) sank 10% after the children’s-apparel retailer reported fiscal fourth-quarter earnings and sales that were well below expectations. The stock did recover decently the remainder of the week.
Wednesday, General Electric (GE) slumped 7.9% after Chief Executive Larry Culp told a broker-sponsored investor conference Tuesday that free cash flow in the industrial business would be negative in 2019.
Abercrombie & Fitch (ANF) rallied 20% after the apparel retailer beat fiscal fourth-quarter earnings and sales expectations and provided an upbeat outlook.
Thursday, Kroger (KR) sank 10% after the food-and-drug retailer announced fourth-quarter earnings that fell short of Wall Street expectations.
Friday, Big Lots (BIG) rallied 14% after the retailer reported fiscal fourth-quarter sales and profits that beat Wall Street estimates.
Have a great week and we’ll see you back here Sunday!