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Week Ahead: With Trade Resolution, Fed Awaited, Equity Drift Will Continue

By Pinchas Cohen/Investing.comMarket OverviewSep 08, 2019 08:21AM ET
www.investing.com/analysis/week-ahead-with-trade-resolution-fed-awaited--equity-drift-will-continue-200462701
Week Ahead: With Trade Resolution, Fed Awaited, Equity Drift Will Continue
By Pinchas Cohen/Investing.com   |  Sep 08, 2019 08:21AM ET
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  • S&P 500 finishes week back above uptrend line since December bottom
  • 2-year yield finishes week higher; 3-month and 10-year lower; 3-M:10-Y yield curve still inverted
  • Dollar slips lower

Since a resolution on the U.S.-Sino trade conflict remains in limbo, at least until the scheduled next round of negotiations in October, and the Fed's upcoming rate cut appears to be a given later this month, stocks will likely drift during the week ahead.

On Friday, U.S. equities scraped out a third consecutive advance, sealing a second week of robust gains after Fed Chief Jerome Powell acknowledged, during a moderated discussion in Zurich ahead of the weekend, that Fed policy will continue to sustain economic expansion in the U.S., though there was some disappointment in Friday's nonfarm payrolls release, allowing for further easing.

Yields, however, closed lower while the dollar finished the trading week well off its lows, suggesting the Fed chief's remarks did little to alter the outlook.

Supply vs Demand Out of Sync?

The S&P 500 eked out a 0.09% gain on Friday, with sector performance mixed, indicating a lukewarm reception to both the lower than anticipated payrolls release and a dovish Fed.

Private payrolls came in at a three-month low, showing weakness but not devestation. This, along with Powell cementing a view toward additional rate cuts, should have provided ammunition for bulls, but it didn’t. Though the Dow (+0.26%) closed higher on the day, the NASDAQ Composite (-0.17%) and Russell 2000 (-0.47%) both finished lower.

The true tailwind for the SPX's weekly performance was the latest development in the ongoing U.S.-China trade relations roller coaster. The S&P 500 jumped 1.79% higher, with all 11 sectors in the green. Consumer Discretionary (+2.75%) and Technology shares (+2.48%) led the gains, while Utilities (+0.37%) lagged.

SPX Daily
SPX Daily

Technically, we are in a quandary regarding the S&P 500 index. We've been bearish on the benchmark due to congestion below the broken uptrend line since the December bottom.

However, the price provided an upside breakout and closed above the uptrend line for a second day—including ahead of a weekend, usually a very bullish signal.The difficulty with this pattern is that it’s within an ascending triangle, presumably bullish, as buyers overtake sellers.

Still, it's typically an interruption of an uptrend, though not after a 6.8% drop, seen from late-July to early-August. Also, it developed after falling below the uptrend line.

On the other hand, an ascending triangle could operate as a bottom. However, a 6% drop after a 29% advance since late-December, when it just broke below the uptrend line, doesn’t strike us the stuff of a bottom. Our conclusion: the normal supply-demand mechanism seems to be out of sync in today’s market.

UST 3-M Daily
UST 3-M Daily

Treasury yields finished mixed. While 2-year yields rose to 1.54% after Powell suggested the Fed’s “midcycle adjustment” might indeed turn into a policy change, the yield on the 10-year note dropped to 1.56%.

Nonetheless, the 3-month finished at 1.964%, so the yield curve remains inverted.

DXY Daily
DXY Daily

The dollar inched lower on Friday, for a fourth straight daily loss. Even so, the USD bounced well off the day’s lows, for a second day, suggesting support toward the bottom of a rising channel since June.

Oil Daily
Oil Daily

Oil eked out a third daily gain, fueled by hopes on trade and a dovish Fed. However it stopped short of crossing above its downtrend line since Apr. 23, after Thursday’s shooting star, which confirmed the downtrend line’s resistance.

In other words, global slowdown fears continue to loom large. The 50 DMA and 2000 DMA have been wrestling with the trend since July.

Week Ahead

All times listed are EDT

Sunday

19:50: Japan – GDP: expected to come in at 1.3% from 1.8% YoY and 0.3% from 0.4% QoQ, bolstering the global slowdown scenario.

Monday

4:30: UK – GDP: seen to edge higher to -0.1% from -0.2% QoQ, bucking the global slowdown trend, and somewhat poignant amid the current disorderly Brexit situation.

4:30: UK – Manufacturing Production: expected to increase to -0.1% from -0.2% MoM, reinforcing the GDP’s implications.

Tuesday

10:00: U.S. – JOLTs Job Openings: expected to fall to 7,300M from 7,348M previous.

Wednesday

8:30: U.S. – PPI: forecast to edge up to 0.1% from 0.2%.

10:30: U.S. – Crude Oil Inventories: seen to jump to -2.488M from -4.771M. Still, inventory numbers have lately had negligible effect on prices since the macro environment remains dominated by U.S.-China trade.

Thursday

7:45: Eurozone – ECB Interest Rate Decision: expected to remain at 0.00%.

8:30: U.S. – Core CPI: likely to edge lower to 0.2% from 0.3%.

8:30: Eurozone – ECB President Draghi Speaks; ECB Press Conference.

Friday

8:30: U.S. – Core Retail Sales: forecast to remain flat at 0.1%; Retail Sales expected to have dropped to 0.2% from 0.7% the previous month.

Week Ahead: With Trade Resolution, Fed Awaited, Equity Drift Will Continue
 

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Week Ahead: With Trade Resolution, Fed Awaited, Equity Drift Will Continue

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Comments (10)
Matt luck
Matt luck Sep 10, 2019 2:30AM ET
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Bear thesis wrong 9/10 times. Cash and Bond positions already at or near all time highs. Everyone is already over-hedged and over allocated to these poor yielding assets.
Adamo Nals
Adamo Nals Sep 08, 2019 7:05PM ET
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Wrong!!! Everyone is inches away from a correction. Take the te pill and enter reality with 10 to 1 good priced in. Which is insane.
Nick Burns
Nick Burns Sep 08, 2019 12:16PM ET
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if the new up channel holds will defend from here at no apparent reason since like other people have pointed out bonds overbought ... China won't really make a good deal... so we'll see
Nick Burns
Nick Burns Sep 08, 2019 12:16PM ET
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descend from here ... algos take over
Adamo Nals
Adamo Nals Sep 08, 2019 12:16PM ET
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Probably a millennial, who doesn’t really understand that world peace a trade deal and 150 basis point cut is priced into the market at 2980. We should be at 2600 minimum. Then we can continue upwards. But everything bad is being ignored which is 10 to 1 bad to good
Max German
MaxiGE Sep 08, 2019 11:10AM ET
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tensions france again, hong kong, brexit drama, bad chinese data, probably bad german data tommorow either, no peace talks with taliban, iran tanker, only hope for bulls algo andd trade and rate cut optimism simple or u ride the bubble or u stay safe and u short
Adamo Nals
Adamo Nals Sep 08, 2019 11:10AM ET
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Correct this is the only person who is thinking with clarity. Every other excuse me idiot on Wall Street thinks the market should keep going higher when you have 10 to 1 bad situations and everything good priced into the market including world peace. Any day this week the correction will start. It’s out of control
Steve Bucher
Steve Bucher Sep 08, 2019 9:52AM ET
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USD downward cycle, trade hype, political pressure from the white house to continue lowering the fed rate and increasing equity short positions are the only reasons for Friday's market bounce.
Benjamin USA
Benjamin USA Sep 08, 2019 9:21AM ET
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Bonds are oversold. Central banks are making it rain. Cash cant go into bonds anymore so it will go into the markets. Thats how its designed to work and so it will be. The bubble doesnt seem ready to pop yet.
Benjamin USA
Benjamin USA Sep 08, 2019 9:21AM ET
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Meant to say that bonds are overbought***
Kenneth Gold
Kenneth Gold Sep 08, 2019 9:17AM ET
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Lol....did you factor in a tweetstorm named Donald like a hurricane?
max cernovic
max cernovic Sep 08, 2019 9:13AM ET
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usa make tgeir own rules they dont care about nothing peolple very logical and easy to minipulate one week up one week down.looks like green next week since bulls have no fair anyways
DONGHUN LEE
DONGHUN LEE Sep 08, 2019 9:08AM ET
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Protests in Hong Kong continue. I think it's dangerous to look too optimistic when nothing has changed.
DONGHUN LEE
DONGHUN LEE Sep 08, 2019 9:07AM ET
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China appears to be making no concessions in trade negotiations.
 
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