June 28, 2019 – Stocks had a relatively quiet week. Which was probably to be expected after last week’s big gains.
Helping to tamp down the post-Federal Reserve enthusiasm this week were comments from St. Louis Fed president James Bullard, who was the sole member of the Open Markets Committee to vote rate cut at last week’s meeting, but said in a speech this week that lower rates by 50 basis points in July would be “overdone”.
Broad indices posted modest gains this week, seemingly correlated to optimistic news about the potential for progress toward a trade deal between the U.S and China after President Trump and Chinese Premier Xi meet at the G-20 this weekend. While no deal is expected to be reached this weekend, the market seems to have priced in an agreement to resume talks, as well as suspend the imposition of new tariffs by the U.S.
Yields on 10-year Treasuries continued to fall this week as investors continue to seek safety even as money is also flowing into stocks. The yield curve also remains inverted. This phenomenon his come prior to recessions in the past, but the time between inversion and recession can be over a year, so while investors should be aware of the signal, they shouldn’t necessarily take drastic action simply because the curve is inverted.
The Trump-Xi meeting is likely to be the catalyst for the market early next week, but outside of a major surprise, volumes are likely to dwindle as the week goes on as we approach the July 4 holiday and the market half day on July 3.
All told this week, the S&P lost 0.60%, the Nadsaq fell 0.45%, and the Dow Jones declined 0.32%.
After setting record highs last Friday, it’s not surprising to see the S&P 500 pull back this week. It was able to find support (dotted lines) at the 2,915 level and recover a reasonable amount of what was lost early in the week. The S&P, the Nasdaq, and the Dow Jones all performed similarly this week. Depending on the outcome of trade talks at the G-20 summit, we could see major movement in either direction early next week. Technical support and resistance levels, as well as major moving averages, work best as indicators during times of normal market movement, and are less reliable during periods of major news-driven momentum. We could easily see the S&P set new highs on relative strength, as there is little resistance at its current level. Should the index pull back trade war news, we could see it fall anywhere between 2,820-2,880, where technical support and support from its major moving averages become stronger.