It was another session of gyrations on Monday, but much less than prior sessions with 300 to 500-point reversals that had become the norm. Moreover, the market is exhibiting more resolve, and staving off late-session swoons often to close much higher.
There was a point when it looked like the Dow would slip into the negative column yesterday as late buying materialized, resulting in the index posting a healthy gain.
Message of the Market
Since peaking on January 26th, the market has suffered massive afternoon swoons that generally trigger around 2 PM. Those drops send investors scurrying for cover and would-be buyers hiding in foxholes. Consequentially, we’ve witnessed the market close at the low of the session, with only the closing bell stopping the damage.
Last week, that trend changed, and we began watching the market find a way off the canvas and pick up positive momentum into the closing bells.
As a tape-watcher, I think this is a very bullish development.
Move from Bottom
I’ve put forth a theory that consumers are a lot wiser these days because they’ve lived through the Great Recession. We’ve seen a sort of self-policing with sharp bouncing in savings rates when they’ve dipped below 3.0%. Yesterday afternoon, the Fed reported the sharpest decline in credit card borrowing in five years.
Revolving credit actually peaked in January at 1.03 trillion, while non-revolving credit - largely student debt and auto loans - continues to climb steadily.
It should be noted that revolving consumer credit slipped under $1.0 trillion in January 2009, and it took eight years and nine months to return to record levels. However, when it’s adjusted for inflation, consumer credit would have to pierce above $1.2 trillion, which is why I think the notion of too many dollars chasing too few goods has been a fallacy among the myriad of reasons to be worried about the Federal Reserve and inflation.
That said, the impact on the market might have been seen today as some of those miraculous rebounds on retail ran out of steam, sending shares of Macy’s (M), Kohl’s (KSS), Foot Locker (FL), and Target (TGT) much lower. So, a wiser consumer could mean the Fed doesn’t have to be as aggressive with respect to hiking rates, but there are stock market consequences.
By the same token, consumers are spending and are willing to pay for experiences and big-ticket items like new homes.
Yesterday, the market got a big pop from technology and industrials as Caterpillar (CAT) continues to rebound, along with Deere (DE) and my old favorite United Rentals (URI).
After the close, Manitowoc Company (MTW), the leading global seller of cranes, posted strong earnings results as management stated that there is an inflection point in demand for cranes. The news means pricing power as the company lifted its full-year revenue guidance above the Street.
S&P 500 Index
Consumer Discretionary (XLY)
Consumer Staples (XLP)
Health Care (XLV)
Real Estate (XLRE)
Obviously, there is still a lot of tension in the market, but the Dow was close to breaking the top of its trading channel, which would mean a close around 24,500 - a major buy signal.
Market breadth continues to improve, as the shift to wider advancing leadership is resulting in more new highs and fewer stocks hitting 520-week low points:
- Advancers: 1,871
- Decliners: 1,087
- New Highs: 114
- New Lows: 59
- Advancers: 1,770
- Decliners: 1,102
- New Highs: 128
- New Lows: 26
China Trade Showdown
I see intriguing action in Chinese stocks even as the saber-rattling continues in China and America. Watch the market and U.S. stocks; Boeing (BA) and Chinese names such as Alibaba (BABA) for real clues to where negotiations are heading.
Crude oil slipped after President Trump said his official announcement would come today at 2 PM. I suspect that’s more about selling the news that the possibility the administration will continue with the current Iranian nuclear deal.
It would seem counterintuitive, considering the non-stop negative news flow, but President Trump’s approval ratings continue to improve and more importantly, his disapproval is moving lower. Political experts tell me if the latter dips under 50%, it would bode well for the GOP in the midterm elections.
It’s not a political statement to know this market wants to see more pro-growth policies put into place, and it would probably rocket higher if the GOP would hold the House and Senate in November.
The major indices are pointing to a lower open. I like however that the market is edging back from lowest levels of the morning. Investors are awaiting a decision from President Trump today at 2 p ET on whether he will withdraw from the current Iran Nuclear deal.