Tuesday, March 19, 2019, 12:31 PM, EST
- Factory Orders rose 0.1%, less than the 0.3% forecast
- Durable Goods Orders also were lower, 0.3% vs. 0.4% est..
- The somewhat weaker data continues a recent trend but has not impacted stocks today.
Today stocks are adding to yesterday’s gains with the Dow up about 100 points and S&P up 8 points to the 2840 level. Despite some risks on the horizon, stocks have momentum lately. With 2,815 in the rear view mirror and the U.S. looking comparatively better than some overseas offerings, large caps are the place to be. Small caps as represented by the Russell 2000 are down about 0.8% this month so far, with the S&P up 500 up 2.1%. Today’s strength began in the morning before the 10 a.m. release of Factory Orders and Durable Goods Orders data, which did not have much impact. Tomorrow we get a decision on rates although no one expects the Fed to change its stance.
To put some numbers behind that, if you look at CME data on the implied probabilities of a move gleaned from bets on Fed Fund Futures, you see a 99% chance of no rate hike and a 1% chance of a ratecut and zero chance of a move higher. Even looking out to December there is a 76% chance of no movement with a 24% chance of a cut an no rate hike baked in. So equities are counting on the Fed to keep rates low. While this is “good” for the market, the underlying weakness that caused it should be a concern. With 1Q earnings comps expected to be negative, and 2Q hanging onto positive comps by a thread, stocks are hoping for positive catalysts elsewhere.
A quote from Mona Mahajan, U.S. investment strategist at Allianz Global Investors sums up the bull case well: “If we get a good report from the Fed tomorrow, coupled with some progress on Brexit, some progress on U.S.-China trade, and then perhaps stabilization in the global economies of two big ones -- U.S. and China -- we’re set up pretty well for a nice second half of this year." There's plenty there that could go wrong, of course. If trade talks falter or the Brexit discussions go off the rails, stocks could obviously falter. On the plus side, the bar for upside earnings surprises is very low. And we do have some off-calendar earnings releases this week that might give us some clues: FedEx, Tiffany, Micron, Nike and PetroChina are all among the companies that will report results. In economic data, Factory Orders were lighter than expected at 0.1% vs. 0.3% forecast, while Durable Goods Orders rose 0.3%, also less than expected (0.4%). A buildup of inventories at the end of last year, might explain some of the sluggishness. This continues the trend of somewhat weaker data, which furthers the case for no Fed rate action and helps stocks. The risk-on mentality is captured in the sector data today, with Utilities and Real Estate companies lagging as the only two negative groups, while Materials and Consumer stocks lead the charge. Further, the VIX (what’s that you say?, no one is talking about it anymore…) is currently at YTD lows at 12.83 now. Meanwhile, WTI crude is at a four month high but little near $59.14 after OPEC deferred a decision on production cuts until June.
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Brian’s Technical Take
Global equities continue to heal and today’s green is led by the German DAX Index (DAX) which is up 1.4%. The DAX has rebounded 14.9% from its 52-week lows and now stands +11.9% YTD. Its YTD performance is relatively in line with the S&P 500 (SPX) and Dow Jones Industrials (INDU), +13.4% and 11.6%, however the return figures off the lows are lagging. The SPX and INDU, +21.1% and +19.9% from their lows, are outperforming by 500-600 bps. Yet the DAX may be embarking on a run to close the gap. The DAX is coming off a tough 2018 where it saw a high-to-low decline of 24.4%.
There was no shortage of internal and external concerns that weighed on performance (Brexit, global slowdown, US-China trade, auto tariffs,) but optimism is helping broken charts heal and the benchmark for Europe’s biggest economy is rising with the tide. Since March 1st the DAX has been consolidating along the 11,675 level which is the neckline of a large bottoming pattern building since mid-October. Today’s 1.4% gain represents a breakout from this large base which carries a measured move towards 13,100, +11% from last sale.
Over the near term longs want to see price hold above the breakout line, 11,675. Today’s high ran into the 200-day sma which risks acting as a firm resistance line. Last thing new longs want to see is a “false breakout” and sharp reversal lower from here. That’s how the day traders get chopped up and spit out. Momentum readings are already at the “overbought” 70 level which may suggest bears have the upper hand in the near term. Thus some backing and filling may be expected until momentum readings reset. The bigger intermediate to long term picture looks very promising so long as price holds above the neckline.
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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.