Quite a bit more volatility this week, and it looked like the worm was finally turning for this selloff until President Trump logged into twitter Friday. Most of the week was the normal give and take between hope (more global central bank stimulus coming) and worry (economic data).
The minutes of the Federal Reserve’s last meeting were released Wednesday:
The minutes of the Fed’s July meeting showed policy makers believed that “it was important to maintain optionality in setting policy.” Most Fed members who supported the rate cut agreed with Fed Chairman Jerome Powell’s assessment that it was a “mid-cycle adjustment” and thus not the start of an aggressive monetary easing campaign.
“With hopes for Fed stimulus as the biggest driver of stocks’ buoyancy in the face of trade tensions and weakening global growth, today’s relatively dovish Fed minutes were about in line with investors’ high expectations,” said Alec Young, managing director of global markets research at FTSE Russell, in a note after minutes were released.
More quantitative easing is headed our way via Europe:
The European Central Bank hinted at a significant new stimulus package after the release of minutes from its July 25 meeting, which suggested that policy makers are contemplating a package that would includes cutting policy rates further into negative territory and new purchases of financial assets.
Fed head Powell gave a pretty dovish speech Friday morning out in Jackson Hole, Wyoming.
In the speech, Powell was seen leaving the door open for another interest rate cut at the central bank’s next meeting Sept. 17-18, saying, “We have seen further evidence of a global slowdown,” since the Fed’s last meeting in July.
Before the speech, the market was pricing a 95.8% chance of one rate cut and a 4.2% chance of no cut. After the speech, the probability of at least a 25 basis-point cut rose to 100%, with the market showing a 5% chance of a 50 basis-point cut.
Also Friday, China announcing new tariffs of 5% and 10% on $75 billion in U.S. imports, set to go into effect in two tranches, on Sept. 1 and Dec. 15, respectively. The Chinese government said that the move was in response to the Trump administration’s plans to institute 10% tariffs on $300 billion in Chinese imports, also in two stages and on the same dates, announced earlier in August.
Things looked fine in the market and then…
President Donald Trump tweeted that he had “hereby ordered” U.S. companies “to immediately start looking for an alternative to China.”
“We always see a selloff when we escalate tensions,” said Art Hogan, chief market strategist for National Securities. “I would argue that this recent escalation is a different flavor of retaliation when you ‘hereby order’ companies to stop doing business.”
”The latest Trump tweets, directing businesses to get out of China, though it’s not something he can actually do, won’t be received well by the Chinese,” Bart Oosterveld, director of global business and economics at the Atlantic Council, told MarketWatch. “It’s something that corporate boards and executives are going to be talking about. If I were an American company thinking of where to expand, I’d probably press the pause button.”
Economic news was not market moving.
For the week, the S&P 500 fell 1.4% and the NASDAQ 1.8%.
Here is the 5 day weekly intraday chart of the S&P 500 …not via Jill Mislinski.
Central bankers have gone wild the last decade — we are now in an era of negative rates. A Danish bank if offering negative rate mortgages. German government bonds have gone negative. And we are just getting started on this global slowdown, should be entertaining how convoluted bond markets look in 2 years the world over.
“The bottom line here is that markets fear the U.S. is being sucked into the very low/negative rate vortex that is consuming European sovereign debt,” said Nicholas Colas, co-founder of DataTrek Research, on Thursday. “The signal that sends: Japan-style deflation and eurozone-like economic stagnancy. Not good.”
The week ahead..
Trade wars, the drumbeat for more easing, and tweets are on the plate again.
Short term: the S&P 500 had broken out over a “double top” in July. That level is now serving as a key resistance area for the third week in a row as intraweek highs have been at that prior breakout level.
The Russell 2000 range is testing low of late May/early June.
The NYSE McClellan Oscillator had turned positive but then Friday… Trump.
Long term: a pullback here on the weekly chart but big picture bulls can only be happy. That said… keep a watch on this long term.
Charts of interest / Big Movers:
Estee Lauder (EL) rose 12.5% Monday, after releasing fiscal fourth-quarter earnings.
Target (TGT) shares set a record Wednesday following the discount retailer’s report of fiscal second-quarter earnings and sales that beat expectations. Target’s stock soared 20.4% after its earnings provided analysts with further evidence that a combination of store and online sales is valuable.
Target said digital channels sales grew 34% in the second quarter. In addition to ordering online and having items delivered to a customer’s home, Target also offers options like Order Pickup that leverage the stores to get items to shoppers same-day.
Lowe’s (LOW) likewise jumped over 10% on the back of its earnings report.
Nordstrom (JWN) issued second-quarter financial results Wednesday after the close, beating Wall Street expectations for sales and earnings, though it slightly lowered its outlook for the full year. The stock jumped 15.9%.
Friday, Foot Locker (FL) tumbled 18.9%, after the retailer reported second-quarter sales and profits that missed Wall Street expectations.
Have a great week and we’ll see you back here Sunday!