This was a second week of consolidation with generally good action in the Russell 2000 and NASDAQ. The S&P 500 and DJIA suffered a bit more as TRADE WARS!!!(tm) fear affect companies in those indexes more than the companies in the former 2 indexes. Quite a few “gap ups” and “gap downs” this week as news overnight weighed on indexes. A sample of this week’s fun:
After Beijing’s retaliation against U.S. planned tariffs on $50 billion worth of Chinese imports, Trump asked U.S. Trade Representative Robert Lighthizer late Monday to identify $200 billion more in Chinese products that could be subject to tariffs of 10%. The U.S. president also threatened to find $200 billion more worth of goods if China tried to retaliate against those additional tariffs.
“We’re still analyzing how much the trade policies, if they go through, would impact valuations and fundamentals. If tariffs continue to rise, that is a negative, and it could derail some of the confidence. However, so many issues like this either don’t end up happening, or they don’t happen in the worst-case scenario. A lot of what we’ve seen is just rhetoric, and if you try and trade off things like that, you’ll likely be wrong,” said Lance Humphrey, executive director of global multi-assets at USAA.
Seems like the Chinese market is taking these threats more seriously then U.S. markets.
For the week the S&P 500 closed down 0.9% while the NASDAQ retreated 0.3%.
Economic data was not market moving.
Worth showing the divergence of small caps which mostly are domestically focused (Russell 2000) vs the Dow Jones Industrial Average which is full of companies who sell internationally – here is a 1 month chart. (click to enlarge). R2K up 3.5% vs DJIA -0.9%, in just 30 days!
Oil jumped Friday after members of the OPEC and other major producers struck a deal that would result in an effective rise in production of around 600,000 barrels a day, a figure that comes as a relief to bullish traders who feared a more aggressive increase.
Here is the 5 day weekly “intraday” chart of the S&P 500 …via Jill Mislinski.
The student loan bubble continues unabated… a future crisis unfolding slowly but surely.
This chart only includes federal loans to students. Private loans increase the debt burden. The Federal Reserve Bank of New York regularly tracks household debt and credit. In their most recent update, they calculate student loan debt to be nearing $1.41 trillion.
Great infographic from Visual Capitalist on the major bull markets – the current one is about to be the longest in duration. Here is a summary but the full infographic on the website is worth the click thru.
The week ahead…
As we said last week, trade wars stuff could be the main headline as economic data is light and we are in the gap between earnings seasons.
Short term: The S&P 500 held its breakout level at just over 2740 – watch that number next week. The NASDAQ remains quite strong.
The Russell 2000 remains impressive.
The NYSE McClellan Oscillator has now been negative all week. That’s a caution flag for short term traders.
Long term: Still very positive for the “buy and never sell” crowd.
Charts of interest / Big Movers:
Monday, Valeant Pharma (VRX) sunk 12.3% after the Food and Drug Administration failed to approve a lotion product intended to treat plaque psoriasis. The stock had been on quite a run after a disaster 2017.
Rent-A-Center (RCII) jumped 22% Monday after it agreed to be taken private by Vintage Capital, a private and public equity firm, in a deal valued at about $1.365 billion.
Tuesday, Foundation Medicine (FMI) surged nearly 29% after Swiss health care group Roche Holding announced a $2.4 billion deal to buy the remaining shares of the genomic profiling group that it doesn’t already own.
Wednesday, Oracle (ORCL) fell 7.5% after an earnings beat was followed up by weak guidance.
Starbucks (SBUX) slumped 9.1% after saying it will close more coffee shops in an increasingly crowded U.S. market.
Friday, Red Hat (RHT) fell more than 14% a day after the software company gave a softer-than-anticipated quarterly outlook.
It is worth noting Etsy (ETSY) which we highlighted last week – this is called “holding a breakout”!
Have a great week and we’ll see you back here Sunday!