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Stocks Fall on Worries Over U.S.-China Trade Deal

The President said yesterday that he will not meet Chinese President Xi before the March 1st China trade deadline.

Friday, February 8, 2019, 12:31 PM, EST

  • NASDAQ Composite -0.62% Dow -0.88% S&P 500 -0.67% Russell 2000 -0.56%
  • NASDAQ Advancers: 884 / Decliners: 1383
  • Today's Volume (vs. yesterday)-17.75%
  • Crude $52.54-$0.10, Gold $1313.00+$3.60,VIX 16.84+0.47

Market Movers

  • US-China trade deal headwinds
  • Earnings reaction: MAT +20%, EXPE + 4.5%, COLM + 17%, GT -10%, HAS -4.3%, SGEN -10%
  • One week till next potential Federal Government Shutdown

Chris’ Commentary

Markets opened lower for the third day in a row following comments from the White House about trade. The President said yesterday that he will not meet Chinese President Xi before the March 1st China trade deadline. This sent ripples through the market. Trump’s remarks, which followed comments from White House economic advisor Larry Kudlow that a "pretty sizable distance" remained between the two sides, diminished investor optimism. Currently 10 of the 11 S&P 500 sectors are trading lower with Energy, Industrials, Financials, Consumer Discretionary and Material all down well over 1%. Utilities, again, as a defensive play are up 0.35%. Crude oil trades lower while gold rallies. The dollar trades higher for the 7th day in a row. The yield on the 10-yr is lower for the 4th day on a row, now at 2.62%.

St. Louis Fed President James Bullard spoke yesterday at St. Cloud State University saying that the current Fed policy is a "little bit restrictive.” He discussed low market-based inflation expectations, labor market and the potential inversion of the yield curve. An inversion suggests that financial markets expect less inflation and less US economic growth. “Market-based signals such as low market-based inflation expectations and a threatening yield curve inversion suggest that the FOMC needs to tread carefully going forward,” Bullard said. “Through its normalization program, the FOMC has already been sufficiently pre-emptive over the last two years to contain upside inflation risk.” Bullard concluded at the moment, "I'm pretty happy where rates are today."

Amazon (AMZN) is reevaluating its NY headquarters site because of local opposition according to the Washington Post reports. The article said “ is reconsidering its plan to bring 25,000 jobs to a new campus in New York City following a wave of opposition from local politicians, according to two people familiar with the company's thinking. The company has not leased or purchased office space for the project, making it easy to withdraw its commitment. Unlike in Virginia — where elected leaders quickly passed an incentive package for a separate headquarters facility — final approval from New York State is not expected until 2020.”

Over 66% of the S&P 500 members have reported earnings so far and the average upside beat has increased to 3.38% from 3.08% yesterday for the S&P 500 as a whole. The quarterly earnings growth rate rose again to 14.31%. The sales growth rate decreased to 6.68%. The majority of companies that have reported have beat analyst expectations, albeit against a lowered bar for the quarter. “This is an earnings-driven market, and where you’ve seen both positive and negative price movement…” said Paul Springmeyer, head of investments at U.S. Bank Wealth Management, “What we are seeing is earnings are in fact slowing, but they still remain positive.” Next week we will reports from CSCO, PEP, NWL, DE, MCO, AIG, NTAP and L.

Sector Recap

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Brian’s Technical Take Optimism over trade talks took a hit yesterday after president Trump indicated he had no plans to meet with President Xi before the March 1st tariff deadline. Yesterday the Nasdaq 100 (NDX) declined 1.3% and with today’s decline it is now down three consecutive sessions. Three consecutive days in the red has not happened since December 24th when the NDX bottomed at 5,899, or 1,140 points ago. It has been a remarkable six plus weeks for the premier growth Index of the world’s largest and top performing economy.

Others may take exception to that characterization, but the NDX has plenty to stand on. Over the last three, five, and ten years the NDX has outperformed the S&P 500 by 25%, 41%, and 223%. Over those same periods vs. the Russell 2000, the NDX has outperformed by 18%, 61%, and 238%. The NDX has been kind to portfolio managers hunting alpha. Since the Holiday lows, the NDX has rebounded +19.4%, to this week’s high. Over this same time period the SPX and Russell 2000 gained 16.9% and 20.3%. I would add that the Russell is coming off a decline of 11.1% in 2018 vs. the NDX which was the only major US equity index to finish in the green, albeit marginally (+0.04%). After six weeks in the green the NDX is on pace to finish with a weekly decline of 0.2%.

This week’s high stalled exactly at the widely followed 200-day moving avg which is nearly equal to the 40-week (yellow line below). The weekly price action is very “toppy” with a textbook “gravestone doji” candlestick pattern which is more than noteworthy given its location along a major moving average. The general rule of thumb in candlesticks requires a red candle in the following period in order for there to be confirmation that a reversal is at hand. Whatever! While that may be fine and dandy for shorter term speculators riding the waves and playing the squiggles, longer term investors should take notice of the breadth signal registered this week and what it indicates in terms of the primary trend.

There is great debate as to whether or not the Q1 rebound is a bear market rally or the start of a new bullish uptrend. We will not KNOW the answer to this question until markets make new highs or new lows, which may or may not be determined by events not yet resolved such as the potential government shutdown or more likely trade with China. However this week the advance – decline line of the premier growth index, the Nasdaq 100, has moved to an all-time high, despite the index being down more than 12% from its 52-week highs. While the near term price action may indicate an overdue pullback is underway, the breadth of the prior rally is clearly very bullish.

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Nasdaq welcomed three new listings today! Gossamer Bio (GOSS), Harpoon Therapeutics (HARP) and Covetrus Inc. (CVET) all started trading today on the Nasdaq. Welcome to the family!

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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