Week-In-Review: Market Falls After China Reports Lousy GDP Growth
The market fell last week as earnings season officially began and China reported weaker-than-expected GDP growth. China is the world’s second largest economy and the fact that GDP growth “only” grew by 6% which was weaker than expected. Analysts are saying that was one big reason why China was happy to make a phase one deal last week. In other news, a slew of earnings came out and, so far, the action has been less than stellar. For the major indices, near-term support is the 50 DMA line and near term resistance is the 2019’s high. Until support is broken, the bulls remain in control.
Stocks were quiet on Monday as investors questioned how “good” Phase 1 of the U.S. China trade deal will actually be. Chinese state media appeared cautious about celebrating the partial U.S.-China trade deal, and warned Washington to “avoid backpedaling” which led many to question how good the deal actually is. The U.S. has suspended a tariff increase to 30% from 25% on at least $250 billion in Chinese goods that were set to take effect on Tuesday. A tariff hike implemented in September was not rolled back and plans for another hike just before the the Christmas holiday on Dec. 15 remain in place. Clearly, more time is needed. On Tuesday, the market rallied nicely as earnings season officially kicked off. JPM, GS, WFC, JNJ, and UNH were some of the big stocks that reported and most of them traded higher after reporting earnings. On Wednesday, the market traded in narrow range as the latest round of earnings were released and that helped offset softer-than-expected retail sales.
Thursday & Friday Action:
On Thursday, the market edged higher after the latest round of earnings were released and a Brexit deal was reached. Netflix and Morgan Stanley were some of the well-known stocks that gapped up after reporting earnings. So far, we are very early in earnings season and on average corporate earnings are off to a decent start. Out of the companies that reported in the S&P 500 more than 78% have reported beat expectations, according to FactSet. Stocks fell on Friday after China reported its weakest GDP growth in nearly three decades. China said its economy grew by +6% in the third quarter, less than expected, and its weakest pace of expansion in over 27 years. In other news, a slew of tech stocks dragged the market lower as shares of Netflix fell hard and closed the earnings gap from Thursday.
Market Outlook: Easy Money Is Back
Once again, global central banks are back on the easy money bandwagon after the Fed and the ECB both announced more easy money measures directly aimed at stimulating global markets. The market has soared all year based on two key points: optimism that a trade deal will be reached between the U.S. and China and more easy money from global central banks. Earlier this year, the Federal Reserve reversed its stance and moved back into the easy money camp. Then, other central banks followed suit and that means easy money is back to being front and center for the market. Separately, the trade talks are moving in the right direction which is another positive. As always, keep your losses small and never argue with the tape.