Market Brief – Tuesday 1/8/19

The heavy lifting continues to be done in the overnight markets, as the futures market caused all major stock indices to open significantly higher. President Trump tweeted early this morning that the trade negotiations were going well as the delegation was going to stay an extra day after negotiations when late last night. The Wall Street Journal quickly responded saying nothing significant happened and that we are still a long way from a trade deal.

After Apple warned fourth-quarter earnings guidance would be well below analyst expectations, Samsung warned of a 29% year-over-year decline in their operating earnings. Not to be outdone, FedEx and LG have also warned their fourth-quarter earnings are headed lower.

President Trump will speak tonight at 6 p.m. PST regarding the border wall. As the government shutdown enters its 18th day, 800,000 Federal employees are without a paycheck. Estimates show for every week the government is shut down, it leads to a 0.2% contraction in real GDP.

Germany’s industrial production numbers fell -1.9% in November and saw a revision of October’s production numbers to -0.8% from the initial -0.5% decline. The year-over-year trend is now negative, indicating the world’s fourth-largest economy is entering a recession, just as the European Central Bank ends its Quantitative Easing program.

Foreign bidders backed away from today’s 3-year, $37.8 billion Treasury auction by taking a mere 42% of the offering. After direct bidders took 17.7%, this left the securities dealers with a hefty 40.3% of the offering. While investors believed Fed Chair Powell when he said the Fed would ease if conditions warranted, Wall Street clearly doesn’t see the Fed slowing down their tightening by much.

Equity Bulls continue to drive the market higher as they brush off warnings of lower fourth-quarter earnings and as they remain hopeful the Fed will backstop the stock market. A telltale sign is in the trading volumes, which are falling even as stock prices rise. When trading volume fades as prices rise, it is a sign the rally is almost up.

The Bulls are within striking distance of 2,600 on the S&P 500, and as of today, closed right at the April 2018 lows.

Treasury yields nudged higher, but remain inside a support zone where buyers, mostly banks, have been scooping up Treasury bonds in a big way. The recent rise in Treasury yields isn’t a major concern knowing the banks are buying in a big way.

Agricultural commodities broke through resistance where they closed over their 100-day moving average and right on their 50-day moving average. The next overhead resistance level has been tough to break, but with the U.S. dollar slowly weakening, it could give this sector a boost.

Physical gold appears to be topping, while the gold miners found support at their 200-day moving average. It’s starting to look like the beginning of a rally, but without confirmation, it’s just noise. Buyers are strong in the mining space, which suggests the next pullback should be bought.