June 21, 2019 – Stock posted gains this week. An announcement that President Trump and Chinese Premier Xi would meet at the G-20 Summit next week helped tamp down concerns that the trade war could escalate further. Also, the Federal Reserve did everything short of cutting rates to reassure financial markets that it will step in if the economy continues to show signs of weakness.
On the trade front, Trump tweeted, and China later confirmed, that the leaders of the two nations would talk during the G-20 summit next week, and that other talks would continue. No one expects a deal to be finalized at the G-20, but a détente is better than continued escalation in rhetoric and tariffs.
The Federal Reserve was the biggest news of the week. The central bank did everything short of actually cutting interest rates to signal that it is ready to act if the economy continues to show signs of slowing. Gone is the language about “remaining patient”. In it’s place, the Fed said it will “closely monitor” new economic data and that it “will act as appropriate to sustain the expansion.”
Stocks and bonds both traded higher after the announcement. That added to a spread between the performance of the S&P 500 and bond yields which, as we discussed in our members-only workshop this week, was already pretty wide. According to the CME’s FedWatch Tool, odds for a cut in July imply that the market is expecting no less than 25 basis points, which has been the central bank’s preferred unit by which to adjust rates during the current tightening cycle. Currently, FedWatch points to a 71.9% chance of a 25 basis point cut in July, and a 28.1% chance that we see 50 basis points.
Ultimately, the economic data that comes out between now and the end of July will have a greater effect on what the Fed does than what the odds imply today, but it seems inevitable that we’ll be getting a cut of at least 25 basis points unless there’s a pretty seismic shift in the economic data.
All told this week, the S&P gained 2.2%, the Nadsaq added 3.01%, and the Dow Jones rose 2.41%.
It was a good week for the S&P 500. The strength we saw in the markets boosted the index to new highs on Thursday. The S&P has outperformed the Nasdaq and the Dow Jones over the last 3 months by more than 0.5%. Since the S&P is sitting near record-highs, the index has gained many levels of technical support (dotted lines). Should the index pull back, there is light technical support between the 2,900-2,940 levels, including assistance from its 8-day moving average (red line). Stronger support comes back into play around 2,880 and provides support in the form of its 50-day moving average (green line).
The Nasdaq broke through its 50-day moving average this week, pushing through light resistance and edging closer to record highs. The index ran into resistance around the 8,100 level, ending the impressive momentum we’ve seen in the Nasdaq this week. Should the index fall from this level, the Nasdaq has strong support between 7,800-7,900, as well as having support from its 8- and 50- day moving averages. If the Nasdaq can power through the 8,100 level of technical resistance, it will be looking to surpass 8,176.08 to set new highs.
Dow Jones Industrial Average
The Dow Jones came very close to setting new highs but was unable to break the 26951.81 mark. The levels of technical support between 26,200-26,600 should help the Dow in the event of a pullback. Stronger technical support can be found between 25,800-26,200 along with numerous moving averages to help aid the Dow. We would like to see the Dow surge into new-high territory but will be watching how the index reacts at 26,200 should the index fall.
Although the Russell 2000 has a lot of ground to cover if it wants to set new highs, the strength we saw in the market was exactly what the index needed to power through the convergence of nearly all its major moving averages. While we would’ve liked to see the Russell maintain strength above 1,555, we are hoping that the newly gained support will be the platform the index needs to continue higher.