It has been a very busy time in D.C. In the last few weeks, Trump placed tariffs on Steel and Aluminium, said he may hit China with tariffs, then replaced his: Chief Economic Advisor, The Secretary Of State, The Head of the CIA, and his National Security Advisor might be next. If that wasn’t enough, the government placed sanctions on Russia for meddling with the 2016 election, and Special Counsel Robert Mueller subpoenaed the Trump Organization for his investigation (I might be missing a few headlines).
Normally, one would expect the stock market to be down considerably on just anyone of those headlines. Instead, stocks are barely budging. Instead, all the major indices are trading just below their record highs. That, ladies and gentlemen, is a very strong sign that the bulls are still in control of this market. Remember, it is not the news that matters, but how the market reacts to the news. The market only needs one or two big up days and we will be trading at new all-time highs again. Stepping back, the next big important levels to watch are 2018’s high (resistance) for the major indices and February’s low (support) for the market. Until either level is broken, by definition, I have to expect this sloppy sideways choppy action to continue.
A CLOSER LOOK AT WHAT HAPPENED LAST WEEK…
Stocks opened higher but ended mixed as the market paused to digest the recent (and strong) two-week rally. In corporate news, Andrew Liveris announced he will step aside as executive chairman at DowDuPont in April. Jeff Fettig, co-lead independent director at DowDuPont, will take over the role. The Nasdaq continued to lead its peers as the big money continues to flow into tech stocks.
On Tuesday, stocks traded between positive and negative territory as traders digested a slew of big headlines. On the political front, President Trump fired Rex Tillerson as Secretary of State and promoted Mike Pompeo, Director of the CIA, to fill that role. Additionally, Trump blocked the Qualcomm acquisition by Broadcom which would have been the largest tech deal in history. Trump cited concerns of national security and QCOM fell hard on the news. Finally, inflation was tame as the consumer price index (CPI) grew by +0.2% in February, which matched estimates.
Stocks fell on Wednesday after fear spread that President Trump would slap tariffs on China and they would retaliate in some fashion which could spark a trade war. There are a lot of IFs in that logic. Separately, economic news was lackluster at best with retail sales falling -0.2%, missing estimates for a gain of +0.3%. This was the third straight month that retail sales fell. Additionally, U.S. producer prices increased slightly more than expected in February which sparked some to worry about inflation.
Thur & Fri Action:
On Thursday, stocks ended mixed as investors digested a busy day of data. In the morning, the White House said it was thinking about implementing tariffs on at least $30 billion of Chinese imports. Separately, the Treasury Department said it will issue sanctions again Russia for interfering with the 2016 elections. Then, The New York Times reported that special counsel Robert Mueller subpoenaed Trump’s businesses and the Trump Organization which put downward pressure on stocks. On a somewhat bullish note, despite all these negative headlines, the Dow rallied over 100 points and the Nasdaq and S&P 500 ended with very modest losses. Stocks were relatively quiet on Friday as investors digested a busy week.
Market Outlook: Chop City
The market is trading between important resistance (2018’s high) and important support (February’s low). Until either level is broken, I have to expect this sloppy, sideways action to continue. The big level of support to watch is February’s low and then the 200 DMA line for the major indices. For now, as long as those levels hold, the longer-term uptrend remains intact. As always, keep your losses small and never argue with the tape.