Trend Reins Supreme!
When considering the latest rally in financial stocks and the conservative stance voiced by Yellen – the latter of which found support in Friday’s retail sales numbers and the negligible inflation rate – it was no surprise to see the market “Sell the News” when it came to the numbers on Friday from the large banks, C, JPM, and WFC. All 3 banks trounced their early earnings forecasts but nonetheless, opened at a gap-down, weighing on the entire financial sector.
To the bears’ chagrin, the latest pressure didn’t spread to the entire market. In its stead, it seems that the moneys that had flowed a number of weeks ago into banking stocks, have now found a new home in other market sectors, especially in tech stocks. Financial stocks all closed higher on the day after recovering substantially from the weak opening, alongside the major indexes which achieved historic highs.
The S&P 500 ended up 1.4% on the week, and at a historic high. The NASDAQ closed just 0.5% short of its latest high.
The earnings season is going into high gear this coming week with 65 S&P 500 firms expected to report their Q2 numbers. Washington will continue to be in focus this week, the Senate poring over the newly revised health care bill submitted for its review, with traders continuing to follow the headlines from the investigation into Russia’s involvement in the Trump election campaign.
The earnings season is opening with the market at a historic high, and now, more than ever before, is the time to see whether American firms can justify the prices at which stocks are trading – and even more than that, see whether the market still has more room to climb.
This will be the first big week of the Q2 earnings season, with key firms like Johnson & Johnson (JNJ), American Express (AXP), I.B.M. (IBM), Morgan Stanley (MS), Goldman Sachs (GS), Microsoft (MSFT), and General Electric (GE). S&P 500 firm earnings are expected to record year-over-year quarterly growth of over 8%, and that’s on the heels of the 15% earnings growth recorded in Q1!
Earnings reports are expected to do the trick and put the ball back in the bulls’ court, but the focus will continue to center on the central banks and Washington D.C. after a number of surprises came our way last week. First off, Fed Chairwoman, Janet Yellen voiced an unexpected caution about the economy; her caution then seconded by the weak inflation figures released last Friday. The market then became privy to an amazing revelation last week, i.e. that Donald Trump’s son had agreed to meet during the election campaign last year with a Russian attorney who had offered him information that would, in the latter’s own words, “incriminate Hillary and her dealings with Russia.” The attorney also told Donald Trump Jr. that it was part of Russia’s “support for Mr. Trump.”
Even though the stock market made short shrift of this revelation, traders will continue to focus on Washington, with the Senate likely to defer its vote on the Better Care Act to beyond this coming week with inadequate support now coupled by Republican Senator, John McCain’s medical leave of absence. The vote, when it comes, is likely to either help boost the market’s expectations that part of Trump’s agenda will be achieved – or on the flipside, take some of the wind out of the market’s sails. In the event the health care bill in its newest incarnation fails, with the Russia headlines persisting, that will doubtlessly create another roadblock forestalling tax reform – which is what investors want more than anything else!
“Trump trading” became very popular after the November elections, pushing up those stocks on track to benefit from tax reductions and fiscal incentives. In the meantime, those very same stocks have lagged behind the market as a whole over the last few weeks – but, that notwithstanding, if investors think that the tax reform will go through, the market, and primarily the abovementioned stocks, are likely to soar.
This coming week there won’t be any big U.S. macroeconomic figures likely to affect the market’s view on Fed policy. At the same time, we will be getting key retail chain sales figures and industrial output numbers – and Chinese growth figures which will be released on Sunday night and which are likely to impact on trading at the beginning of the week.
In summary, it seems that just a few weeks ago things seemed unstable for the bulls, the bearish outlook picking up steam and beginning to shape price movement, but when push came to shove, it didn’t cause indexes any significant technical damage. Again, what we’re seeing here is the power of the trend, along with the futility of trying to predict when a trend will revert course!
The release of firms’ results will significantly pick up speed this coming week, and are expected to create abundant opportunities for daytraders honing in on individual stocks, regardless of index’s movement.
Have a great trading week!
|Tuesday||10:00||NAHB Housing Market Index||67||Medium|
|Wednesday||10:30||Crude Oil Inventories||–||Low|
Today’s Picks – Day Trading!
New York Strategy Swing
Today’s Picks – Swing “New-York Strategy
No.1 – LB
|Company Name||L Brands, Inc.|
|Sector||Services | Apparel Stores|