May 3, 2019 – Major indices didn’t end this week very far from where they ended last week. A streak of very mildly positive sessions to start the week was snapped Wednesday after Federal Reserve Chairman Jerome Powell said slow inflation in the first quarter was due to “transitory” factors and the central bank had no plans to alter the current course of monetary policy.
Somewhat incredibly, the market was expecting something more dovish and stocks tumbled Wednesday afternoon and Thursday. It is true that inflation has been persistently below target for both a very long time and for reasons many economists have hard a hard time explaining. That said, this morning’s jobs numbers show the economy continues to add jobs at an average pace of more than 200,000 per month. At the same time, unprofitable companies that are losing billions of dollars a year are coming to the public markets, where investors are lining up to give them more cash to burn. Given those circumstances, it seems hard to argue that financial conditions are actually tight.
Today’s jobs report helped reverse the trend as it reminded traders that while inflation is below the Fed’s 2% target, the economy is actually still doing very well.
Meanwhile, earnings season continues to roll on. There have been some ups (Apple’s results were good!) and some downs (DowDupont’s results were bad!). While it didn’t move much this week, the market is generally higher than it was a the end of the first quarter before the reports started to roll in.
According to FactSet, Actual reports, combined with estimates for S&P 500 components not yet reporting, indicate a 0.8% decline in earnings compared to the first quarter of 2018. Although that same figure was for a decline of 2.3% last week. If earnings continue to come in ahead of estimates. The actual figure could be positive by the time everyone has reported.
Stocks are back at all-time highs. This is obviously great for investors, but anyone concerned about valuations in September of 2018, should have the same concerns now, as earnings aren’t growing (possibly shrinking as mentioned above). A trade deal with China could unlock another rally, but we’re not convinced that a deal is ever going to happen.
All told this week, the S&P gained 0.20%, the Nadsaq added 0.22%, and the Dow Jones lost 0.14%.
The S&P 500 set new highs this week. The index began to fall after setting record-highs Wednesday but was able to find support (dotted lines) at 2,900. After rebounding, the S&P ended up back at resistance (solid line) just above 2,940. With the S&P having both technical support and support from its moving averages directly below its current level, we could see the index run sideways if it cannot hold onto gains after breaking out to new highs. Should the S&P fall below 2,900, there is stronger support at 2,860 as well as support from the 50-day moving average (green line).
The Nasdaq also set new highs again this week. After falling to technical support around the 8,000 level, the index rebounded. With many levels of support below and the index sitting at record-highs, the Nasdaq has a very good opportunity to continue higher. Like the S&P, if the Nasdaq cannot hold onto gains in new-high territory, we could see it run sideways.
Dow Jones Industrial Average
The Dow Jones continued to struggle at resistance near 26,600. Support between the 25,800 level and the index’s current level is strong, so if the Dow can use this support to break through 26,600, we could see it set new highs soon.
The Russell broke out above resistance that had been hampering the index for weeks around 1,580. The Russell struggled again at 1,600 but had myriad technical support and support from its moving averages that helped boost it higher. Now that the Russell has broken through the 1,600 level, resistance will be weaker until it reaches resistance levels around 1,670 and higher.