July 19, 2019 – Another quiet week for the market as a whole. Earnings season brought volatility to some individual stocks, but the major indices moved about one percent or less for the week.
That lack of action isn’t necessarily bad for investors, especially when major indices all up by more than 15 percent for the year. It makes life a bit more difficult for columnists, but that is, admittedly, a pretty niche concern.
Trade, conflict with Iran and the Federal Reserve were all in the news this week, but there wasn’t enough concrete information on any of those fronts to move the market in either direction.
We’re getting close to the blackout period before the Fed’s July 30 to 31 meeting, meaning we’ll be getting fewer central-bank related headlines over the next week and a half. At this point it seems like we’re probably getting a 25 basis point cut in interest rates. Based on the economic data we’ve seen recently, that cut seems sort of unnecessary as a stimulative measure. Given the persistent lack of inflation, there doesn’t seem to be a lot of downside to a cut at this point either.
The trade picture remains murky at best. We’re back to reports about phone calls, speculation about future meetings and no actual details that anything has been agreed to. For now, the best bet seems to be on the current status quo persisting for a while, but there is always a risk that the last tranche of tariffs on Chinese goods that has been threatened several times could be imposed after a flurry of tweets.
Iran is the situation that’s the hardest to predict. Both in terms of what could happen and what it would mean for the market. The U.S. is much less dependent on oil that passes through the Strait of Hormuz that it was even a few years ago, meaning that escalation of tensions up to a certain level is likely less bad for the economy than it once was. A spike in oil prices could even be good for oil stocks with operations that are primarily in areas away from the Middle East.
As for earnings, the biggest stories of the week were CSX (CSX) and Netflix (NFLX), both of whom missed expectations and proceeded to lose big. In general, more companies beat than missed this week, but none of the big-name beats resulted in big gains. Microsoft, for example, reported a quarter last night that topped expectations and, after opening lower, ended up closing basically unchanged.
All told this week, the S&P gained 0.78%, the Nadsaq added 1.01%, and the Dow Jones rose 1.52%.
Given the market’s lack of movement this week, last week’s support and resistance study remains valid. You can see that here.
Today we will be looking at the Nasdaq on 10-year chart using monthly candles. The interesting thing about this chart is the relative lack of volatility until up until the last year and a half. Even with the market continuing to new highs, the amount of volatility we have seen in the past year and a half has made stock trading a tricky endeavor, even for experienced investors. The next highest period of volatility in this time frame is when the market sold off sharply in June 2015 due to China’s weakening economy and concerns of global economic growth, as well as a sharp decline in oil prices. The monthly candles starting in January 2018 really put into perspective the amount of volatility the market has experience and how the landscape of stock trading has changed in a news-driven environment with a lot of lingering geopolitical concerns.