Yawns. After Trump’s highly anticipated State of The Union traders largely ignored the speech making for a muted session for equities. Stocks closed slightly lower in the wake of several days of gains, lacking the motivation to extend the rally as traders seek the next driver to power the markets.
WHAT YOU NEED TO KNOW:
1) The market has baked in much of the news regarding a trade deal with China as a continuous stream of “positive progress” bites seems to have little effect on the market in recent sessions. With Lighthizer and Mnuchin traveling to Beijing next week for further talks markets continue to take a show-me stance. Both sides seem highly motivated to get the issues resolved and the market is expecting some sort of resolution to occur – even if all we get is an extension of the deadline.
2) The S&P500 and NASDAQ 100 remain just below key resistance from their long term trend lines. Both of the indices continue to bounce off of their 200 day moving averages, which is normal and healthy. Closes above these key levels would be a positive signal for many investors.
3) WHILE YOU SLEPT, Jerome Powell sent a mixed message in a Washington DC speech last night as he spoke of the strong US economy with low unemployment leaving traders wondering whether he can remain a rate dove for too much longer. Fed Governor Randall Quarles also gave high marks to the domestic economy and believes China to be the principal impediment to global growth. The market’s response to the comments can be seen in the US dollar, which strengthened overnight – remember strong economy means rate hikes which strengthens the currency.
Markets traded sideways for much of yesterday’s session with very little in the way of news. The pause in equities is a healthy step as markets continue to claw their way back up to re-trending. It should be noted that we are already back to levels not seen since Thanksgiving of last year, so a lot of ground has been covered since the low closes of 12/24. Yesterday, the S&P500 fell by -0.22%, the Dow Jones Industrial Average slipped by -0.08%, the Russell 2000 traded off by -0.14%, and the NASDAQ 100 retreated by -0.37%. Markets continue to embrace the dovish tone from the Fed as well as the relatively positive earnings that have been released thus far. Interestingly traders seem to be shrugging off the guidance which has been relatively negative for the quarter ahead. We are still in the thick of earnings season with just around half of the S&P500 members having reported, so there is still plenty of information for investors to digest in the days ahead. Bonds seem to be resuming the pattern that persisted for much of the 4th quarter of last year as they continue to factor in softness in the economy, the possibility of lower rates, and the possibility of the Fed curbing its balance sheet runoff. 10 year yields drifted slightly lower yesterday as they ended the session at 2.69% and the 2/10 yield curve flattened for a second session bringing it to around 16.6 basis points.
Today we have only the weekly employment numbers to contemplate and the release is expected to show 221k initial jobless claims versus last week’s 253k. Today, the Treasury will auction off $19 billion 30 year bonds which will be closely watched by bond traders. Remember that longer maturities represent expected future inflation and economic health. Finally, we have a solid morning of pre-market earnings releases including Twitter, T-Mobile, and Yum! Brands. Twitter and T-Mobile posted beats while Yum! missed by -57.7%. After the close we will hear from Mattel, Mohawk Industries, and Qorvo, amongst others. Another quiet day leaves traders to ponder Powell’s Washington speech, which should make for some interesting debates.