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Stocks Erase Gains Despite Trade Deal Hopes

U.S. & China closing in on a deal that could see removal of most tariffs.

Monday, March 4, 2019, 12:31 PM, EST

  • NASDAQ Composite -1.01% Dow -1.19% S&P 500 -0.94% Russell 2000 -0.85%
  • NASDAQ Advancers: 870 / Decliners: 1371
  • Today's Volume (vs. Friday)-28%
  • Crude $56.65+$0.85, Gold $1287.80-$11.40,VIX 14.15+0.58

Market Movers

  • U.S. & China closing in on a deal that could see removal of most tariffs
  • Construction spending fell an unexpected 0.6% in December vs 0.1% expected growth
  • Market reversed late morning
  • Democrats' Trump probe escalates with scores of document demands

Chris’ Commentary

The snow over the weekend did nothing to dampen this market’s rally. China and the U.S. close in on a trade deal that had the markets rallying to start the session. The WSJ reported that, “China and the U.S. are in the final stage of completing a trade deal, with Beijing offering to lower tariffs … and Washington considering removing most, if not all, sanctions levied against Chinese products since last year.” Optimism prevails here. Positive sentiment has been moving this market higher since the beginning of the year and this could be the spark that pushes us up to new highs. All S&P sectors have turned red late in the morning after opening positively. Tech leads lower as political headlines turn today's sentiment negative. Bloomberg reports, "House Judiciary Chairman Jerrold Nadler escalated Democrats’ investigations of Donald Trump with sweeping demands Monday for information from scores of people on topics including the administration’s activities, the president’s business and his potential ties to Russia." Crude oil is higher while gold trades lower. The dollar moves higher again. The yield on the 10-yr is slightly lower at 2.74%.

M&A headlines crossing the tape this morning as Biogen (BIIB) announce they will acquire Nightstar Therapeutics (NITE) for $25.50 a shares in cash. YTD, global M&A has top $832 billion of announced or proposed deals which is down 6.6% from this time last year. In North America, we have seen $476 billion in deals which is down over 5% from this point last year.

Two months are in the books and it is absolutely a risk on atmosphere. The Dow has returned 11% since the beginning of the year and nearly 20% since the December lows. The S&P 500 and Nasdaq posted similar comps while the small cap Russell 2000 index has returned over 25% since the December lows. This is a broad based rally. What can slow this down? Not the month of March according to Ryan Detrick of LPL Financial. “History would say that we won’t get a massive pullback; over the past 20 years, March has been the second strongest month for stocks…when you have massive buying pressure and strength off the December lows, usually the market over performs in the short-term.” Detrick said investors who choose to sit on the sidelines this month may miss out on momentum-driven gains.

eVestment recently reported Q4’18 fund flows in their Traditional Asset Flows Report. They reported long-only asset managers held institutional assets of $23.81 trillion with net institutional outflows of $234.4 billion in the final quarter of year, pushing full year 2018 redemptions past a half trillion dollars to $517.5 billion. The report noted that fixed income investment managers, excluding cash management strategies, reported net institutional outflows of $141.1 billion last quarter and were roughly flat for 2018. Meanwhile long-only equity managers reported net institutional outflows of $106.8 billion Q4’18. This makes sense as Q4’18 was a risk-off quarter punctuated by high volumes and volatility. Lipper reported combined inflows last week of $16 billion to all four asset groups (money markets, taxable bond funds, muni bond funds & equity fund). Risk has been back on to start the year, so it will be interesting to see how these flows follow through for Q1’19.

Sector Recap

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Brian’s Technical Take

President Trump spoke at a political conference over the weekend and touched on the US dollar which he opined is too strong, however his comments are not having much impact in today’s session. After initial weakness the US Dollar index (DXY) is +0.2% to $92.73, its fourth consecutive session in the green. The DXY bottomed last week at the 200-week moving average (red line, now 95.67), while its prior low in late January bottomed at the 200-day moving average (yellow line, now 95.88). The DXY has proven to be sensitive to the former 200-week moving average high acted as resistance for most of the time between May and October 2018, and then support from November into January. The DXY is now just 1% from its 52-week high, 97.71, made in Q4. A move above that level could embolden the President to ratchet up his dollar and Fed commentary.

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Nasdaq's Market Intelligence Desk (MID) Team includes:

Charles Brown is Associate Vice President on The Market Intelligence Desk with over 20 years of equity capital markets experience. Charlie has extensive knowledge of equity trading on both floor and screen based marketplaces. Charlie assists with the management of The Market Intelligence Desk and works with Nasdaq listed companies providing them with insightful objective trading analysis.

Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.

Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.

Brian Joyce, CMT is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Before joining Nasdaq Brian spent 16 years as an institutional trader executing equity and options orders for both the buy side and sell side. He also provided trading ideas and wrote technical analysis commentary for an institutional research offering. Brian focuses on helping Nasdaq’s Financial, Healthcare and Transportation companies, among others, understand the trading in their stock. Brian is a Chartered Market Technician (CMT).

Michael Sokoll, CFA is Associate Vice President on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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