- Friday's record equity index trifecta resulted from U.S. trade rhetoric, but conflicting weekend reports could pressure stocks lower
- VIX near lowest levels since 2018
- The dollar dropped on Friday along with safe havens but nervous investors could jump back in on Monday
It's unclear how much more risk investors will be willing to take on, after Friday's astounding trifecta of all-time-highs. The Dow, S&P 500 and NASDAQ all finished the week at new records, with each benchmark closing at the very highest point of the session.
However, with any sort of trade resolution still unclear—notwithstanding reports out of China on Saturday that "constructive talks" via a high-level call had occurred with the U.S.—market volatility will likely intensify. Though reports on Friday cited a top White House official saying a signature was forthcoming, news over the weekend wasn't as encouraging.
Even with "constructive talks" being signaled by the Asian nation, both sides haven’t been able to actually get past significant roadblocks, with some officials even indicating they’re “not on the same page." Though the latest news provides a more optimistic tone, with numerous reversals in the ongoing trade resolution narrative having already occurred, how much longer will investors buy the encouraging news, which never actually leads to a significant conclusion? While the path to a trade deal has been a windy one, it has, nevertheless been the key market driver for risk during the past month.
Equities Jump, Safe Havens Slump
U.S. equities bounced higher to close the trading week, vaulting into uncharted territory. The dollar fell, along with safe havens—Treasurys, gold and the yen.
Global economic data remains mixed, with softer October retail sales and industrial production in China, but firmer-than-expected eurozone GDP. The global slump in manufacturing appears to be improving; the global manufacturing PMI has moved higher for three straight months, albeit from low levels. We believe underlying fundamentals could support further gains in stocks, but we don't expect the recent low volatility to persist indefinitely.
The VIX has reached its lowest point since Apr. 12, which tends to make contrarian investors nervous.
The S&P 500 rose 0.77% on Friday, with Health Care doing most of the lifting, (+2.13%), after President Donald Trump talked about a new transparency in healthcare plan he'd like to implement, forcing hospitals to reveal discounts they receive from insurers. Shares of insurers such as UnitedHealth Group (NYSE:UNH), Humana (NYSE:HUM), Anthem (NYSE:ANTM) and Cigna (NYSE:CI) initially enjoyed a boost but closed off session highs, as the plan is expected to be challenged in Congress. For the day, trade-sensitive Materials was the only sector that slipped into the red, (-0.08%).
On a weekly basis, the SPX climbed 0.89%, with Healthcare once again in the lead, (+2.45%). Energy underperformed, (-1.01%), even as oil advanced on trade hopes. Financials were also in negative territory, (-0.3%).
The benchmark index advanced for the sixth straight week—its longest streak in two years. It hit another all-time high alongside the NASDAQ ((+0.73%) and the Dow Jones Industrial Average (+0.8%), which moved past 28,000 for the first time. The market hat trick was also a stunning a show of force, as no one dared take the opposite side of the trade.
Only the small cap Russell 2000 closed off its highs, though it too finished the week higher (+0.47%); as well, the index has hit no new record since August.
Technically, the small cap index may be forming a bullish pennant or falling flag.
Yields on the U.S. 10-year Treasury note advanced on Friday, even as they struggled at the crossroads of a rising channel since the September bottom and the long-term downtrend line since November 2018. For the week, yields trimmed half of the previous week’s gains.
The USD fell for a second day, on Friday, slipping for the week as well. Technically, it found support at the neckline of a small double-bottom.
The yen slumped both on Friday and for the week, as it found resistance by the highs since August, nearing the downtrend line since the October 2018 high.
Gold fell for the first time in four sessions, on the way back from a falling channel bottom, edging higher for the week.
Crude jumped on Friday, ending the week higher for the second day in a row, after White House economic adviser Larry Kudlow's comments late on Thursday that a partial trade agreement with China was close to being signed overshadowed supply concerns raised by the International Energy Agency on Friday.
Week Ahead
All times listed are EST
Monday
19:30: Australia – RBA Meeting Minutes
Tuesday
8:30: U.S. – Building Permits: expected to fall from 1.391M in September to 1.383 in October.
20:30: China – PboC Interest Rate Decision
Wednesday
8:30: Canada – Core CPI: YoY measure expected to remain flat at 1.9%.
10:30: U.S. – Crude Oil Inventories: seen to have slipped to 1.649M from 2.219M.
14:00: U.S. – FOMC Meeting Minutes: Always anticipated look into Fed thinking on the recent cut and future rate decisions.
Thursday
8:30: U.S. – Philadelphia Fed Manufacturing Index: likely to rise to 7.0 from 5.6.
10:00: U.S. – Existing Home Sales: probably rose to 5.48M in October from 5.38M.
Friday
2:00: Germany – GDP: forecast to remain steady at 0.1% QoQ, while plunging to 0.5% from 1.0% YoY.
3:30: Germany – Manufacturing PMI: likely to rise to 43.0 from 42.1.
3:30: Eurozone – ECB President Lagarde Speaks: the first public event for the eurozone's new central bank president.
4:30: UK – Manufacturing and Services PMIs: previous results 49.6 for manufacturing, 50.0 for services.
8:30: Canada – Retail Sales: expected to come in at 0.1% from -0.1% previously.