Market Brief — Friday 9/14/18

Retail Sales came in at +0.1% MoM which is below expectations of a +0.4% MoM gain. Excluding autos, retail sales were expected to rise by +0.5% MoM but only managed a +0.3% MoM gain. Core Retail Sales also missed analysts’ expectations by showing a +0.1% gain for the month of August.

One might think stocks and Treasury yields would fall on this news, but the opposite happened. Stocks rose slightly in early trading before the news broke that President Trump wants to enact another round of $200 billion in tariffs against China.

Treasury yields rose until the 10-year yield tagged 3%, which is a spot Treasury Bulls have been buying bonds at. I believe this recent run-up in yields from 2.8% to 3.0% has more to do with the Treasury Bulls wanting to buy at 3%, so they are allowing the Bears to push yields up a bit. Bears need yields to push past 3.0% while Bulls want to see yields below 2.8%.

Stocks shrugged off the news that there may be another round of tariffs coming for China, but when there are large price-insensitive buyers, it doesn’t really matter.

As long as corporations continue to pump money into share buybacks, the stock market will seemingly ignore any bad news. As of September 1st, there is only $150 billion of pledged share buybacks out of the $1 trillion for the year. Once this money dries up, the market will react to bad news.

Yields fell on the tariff news, then short-sellers pushed back. Ten-year Treasury yields closed below 3% as buyers stepped in to keep yields from rising further.

Volatility has been crushed for the fifth time this week, but stock prices aren’t reacting like they once were. Given stocks and volatility are usually inversely correlated, this could be a sign that stocks may not have much more room to rise.

Despite some hope gold would rally, physical gold closed under $1,200/oz and the large gold miners fell as well. While there have been buyers in the mining sector lately, there haven’t been enough to fend off the short-sellers.

Agricultural commodities were down slightly but are showing continued signs of a bottom. The 50day moving average is starting to bottom out, which suggests prices will try to break above its 50-DMA soon. With prices flat for a month now, this is a good sign that sellers may be exhausted.