- The long awaited signing of a U.S.-China trade deal has stocks trading at new record highs
- Producer prices rose less than expected as inflation is still hard to find
- Bank earnings not as strong as yesterday's; Target falls after holiday sales disappointment.
Today, market futures were slightly lower as stocks fell overseas. Once the regular session began, stocks rallied to new Dow, S&P 500 and Nasdaq Composite records ahead of the expected signing of a trade deal between the U.S. and China today in Washington D.C. Yesterday the fact the U.S. and China still have more work to do with tariffs and structural issues caused a failure of the Dow to hold the 29,000 level. We’ll see if today can mark the first time the index closes above that level.
Producer prices for December rose only 0.1% vs. a 0.2% estimate. This might be viewed as positive for a market that likes low rates, or maybe it’s not so great since the Fed has indicated it would allow inflation to run a little above the 2% target rate for a while. That inflation has been low for so long is a concern to some. Annual core U.S. prices rose at the slowest pace since 2016. PPI Ex Food and Energy rose 0.1% as well, also against a 0.2% estimate. Also, the January Empire manufacturing index of NY-area manufacturing was reported at 4.8 vs 3.6 estimated and 3.3 in December (revised from 3.5).
In earnings news, JPM and Citi’s beats yesterday did not carry over to Goldman and B of A. Goldman Sachs moved lower after earnings. Blackrock, which now has $7.4 trillion in assets by the way, B of A and United Health were also among companies that released results. All three were close to unchanged on light post-earnings volume as we entered the regular session. Target shares weakened on a lower sales forecast as holiday sales disappointed. Tomorrow we’ll hear from Bank of NY, Morgan Stanley and CSX Corp to name a few.
Also today, the House today is expected to send the articles of impeachment against President Trump to the Senate. As far as the markets are concerned this is about as newsworthy as saying it’s Wednesday.
Finally, the Federal Reserve releases its beige book report on U.S. economic conditions at 2 p.m. Usually this is not market-moving though the report contains a wealth of information for economists and investors to analyzes.
Brian’s Technical Take
In recent MIDDAY Updates, we have been highlighting the similar price patterns in both the 10YR UST and 10YR German Bund yields. Both yields made 52-week lows on September 3rd and have since been in a trend of higher lows converging into a clearly defined horizontal resistance level (ascending triangle). Our expectation was for a bullish breakout to new six month highs.
We updated the setups in Friday’s MIDDAY Update (1/10) and noted the upside “bullish breakout” in the 10YR German Bund yield, as expected, however, the 10YR UST yield did not accompany it. This led the spread between both yields to drop to two year lows. In fact, since early last week, the long UST yield has repeatedly been oscillating around its 50-day sma, which over the prior three months had acted as a reliable support level. Today the long yield is dripping lower to a “last sale” of 1.79%.
A break below the 50-day sma may simply suggest the 10YR UST yield may need more time before resuming the prior Q4 uptrend, however it could also suggest investors are becoming more risk adverse as the equity market continues to melt higher in the face of good and bad news.
Time will tell how this plays out but the sideways chop in yields appears to be good for the defensive groups, in particular utilities. In the November 11th MIDDAY Update, and reiterated two days later in the November 13th MIDDAY Update, we noted “Utilities was the worst performing sector so far in Q4 but we felt the pendulum had swung too far the other way and the group was ready for a rebound.” At the time the sector ETF, ticker XLU, was testing a cluster of technical support, momentum (32 daily RSI) was approaching oversold levels, while the long UST yield was just beginning to roll over from tis first test at clearly defined resistance.
In hindsight November 11th proved to be THE low for the quarter, and now two months later the XLU has gained more than 8%. This week’s +1.6% gain is breaking out to new all-time highs signaling the prior multi-year uptrend has resumed. It remains to be seen whether or not new highs in the defensive utilities sector is a “bearish divergence” foreshadowing a looming correction in the broader equity market, a rising tide lifting all boats, or some other. This is what makes markets.
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.