Global Economy – Global stocks fell Friday amid worries about the potential impact of U.S. trade policies and as investors became more cautious about the market’s recent rally. European stocks are down -1.19%. Uncertainty ahead of France’s presidential election in April and Tuesday’s speech to Congress from President Trump has fueled long liquidation in stocks. European political risks have increased as far-right French presidential candidate Marine Le Penn, who wants to take France out of the EU, is seen gaining in polls, while President Trump promised something “phenomenal” with respect to tax reform three weeks ago, and his every word will be parsed when he addresses House and Senate lawmakers on Tuesday.
U.S. Economy – Consumer sentiment flattened out in the preliminary February reading, down nearly 3 points to 95.7 and signaling a possible end to the post-election confidence surge. Americans bought more new homes in January after a steep fall-off the previous month, a sign the housing market is healthy despite higher mortgage rates. The Commerce Department says new home sales rose 3.7 percent to a seasonally-adjusted 555,000 units. That is 5.5 percent higher than a year ago.
Solid job gains and some signs of rising wages have driven up consumer confidence, which has also risen since the presidential election. More confident consumers are more likely to buy homes. Sales of existing homes jumped to their highest level in a decade, according to data released earlier this week.
Earnings – The bulk of the Q4 earnings season is now behind us, with results from only about 18% of the S&P 500 members still awaited. The Retail sector is the only one at this stage that has a sizable number of reports still to come. Total earnings for the 46.5% of Retail sector companies in the S&P 500 index members that have reported Q4 results already are up +5.8% from the same period last year on +7.1% higher revenues, with 55% beating consensus EPS estimates and a much weaker 20% beating revenue estimates. These are weaker results than we have seen from the same group of retailers in other recent periods. Total Q4 earnings as a whole for the Retail sector, combining the actual results that have come out with estimates for the still-to-come retailers, are expected to be down -1.2% from the same period last year on +4.7% higher revenues.
We now have Q4 results from 411 S&P 500 members, or 82.2% of the index’s total membership. Total earnings for these 411 index members are up +8% on +4.9% higher revenues, with 68.9% beating EPS estimates and 54.7% coming ahead of top-line expectations.
Market Sentiment – The probability that the Federal Open Market Committee will increase its fed funds rate at its March 15 policy meeting is 18%, when 22% was predicted yesterday. The probability of a rate hike at its May 3 meeting is 48%, which compares to 52% on Thursday and the probability of a rate increase at the June 14 meeting is 67%, which compares to 72% yesterday.
Stock Market Analysis – At the present time only 60% of stocks in the SP 500 are trading above the 50-day line, while price remains near all-time highs. This tells us that stocks are being driven by few larger cap stocks and the majority of smaller stocks are approaching the 50-day line to the downside.
Once the 50 day momentum line hits 50% we will see substantial weakness move into the overall stock market, which is needed to cause balance to current positions in the short term time period window.
Technically, stocks appear much stronger when you consider the price action in comparison to current momentum levels. I’m anticipating the SP 500 to correct all the way down to the 200 day line, which will cause increased balance to the overall stock market and create stability within individual sectors of the economy once again.
RSI Oscillator remains above the 80th percentile and based on statistical analysis, especially in light of the current political climate, the odds are highly probable that stocks will begin seeing minor distribution in the near term. Stocks can trade directionally based on sentiment for limited amount of time and if the sentiment doesn’t turn into reality, the most probable scenario is a strong pullback or retracement back to the base.
Courtesy of Market Geeks