Can you deal?

Can you deal?  Stocks rose on Friday on, once again, optimism about the potential for a US trade deal with China.  A number of weaker than expected economic numbers held markets back earlier in the session but ever-present trade optimism helped indexes rally into the close.

WHAT YOU NEED TO KNOW:

1)  A deal with China may be closer than ever.  Over the weekend, WHILE YOU SLEPT, lots of data points were being disseminated and all of them seem to be indicating that a removal of some, if not all, US tariff’s on China will be included in the announcement.  Asian markets rose on the news overnight and US equity futures followed suit.

2)  The economy continues to show some areas of weakness, though overall, it continues to hum along. On Friday Personal Income, Personal Spending, Markit Manufacturing, ISM Manufacturing, and Michigan Consumer Sentiment all missed the mark.  The PCE deflator, an indicator of inflation, came in right on expectations, supporting the Fed’s patience campaign.

3)  Bond traders have their work cut out for them.  There is a tug of war happening between bond traders and it is playing out in the rates and credit markets.  While the most optimistic traders believe that the Fed will actually cut rates in 2019, many still are buckling down for the potential for at least one hike later this year.  To add to the mix, many are still unsure about what a slowdown of balance sheet normalization would mean to the overall market.  10 Year US treasury yields advanced by 10 basis points last week, closing at 2.75%.

Optimism still rules the day as stocks were able to close on a positive note despite a run of bad economic data.  Stocks opened higher, largely on trade hopes and the morning economic releases led traders to pair early gains.  Late in the day, positive comments by economic advisor Larry Kudlow helped stocks recover to close higher but off their session highs.  The S&P500 closed up by +0.69%, the Dow Jones Industrial Average traded up by +0.43%, the Russell 2000 rallied by +0.89%, and the NASDAQ 100 advanced by +0.76%.  Both the Dow and S&P500 closed just above key levels of 26000 and 2800, which is positive for the indexes.  All of the major indexes are at key inflection points having failed at these levels in the past.  Bonds as a whole fell last week by -0.4% and the 2/10 treasury yield curve steepened by 4 basis points to end the week at 19 basis points, which is right around where we were as we closed out 2018.

WHAT TO LOOK FOR TODAY:

We have no major releases today leaving traders to focus on the potential for a trade deal announcement.  There will be plenty of discussion about President Trump's potentially mounting legal struggles as congressional law makers begin to step up the rhetoric and increase the scope of their inquiries into wrong-doing.  Additionally, the speculation that Mueller is within days of releasing his findings will add fuel to the debate over the release of details.

WHAT TO LOOK FOR IN THE WEEK AHEAD:

We still have a number of corporate earnings releases coming up, many of them in retail.  It has been an interesting season for the sector with some big surprises.  Notable is the Gap’s last week announcement that they will be splitting the company up into two entities.  Driven by the news, shares of the GAP rose by +19.8% on the week.  On the economic front we will get reads on housing, the service economy, the Fed’s Beige Book, and the always hot monthly employment situation.  Economists are predicting that 184k new jobs were created in February and that the nation’s employment rate fell slightly to 3.9%. Refer to the attached weekly release and economic calendars for more details.

daily chartbook 2019-03-04

earnings releases 3_4

econ numbers 3_4