Stocks ended slightly lower on the first week of the second quarter but, for now, the bulls managed to defend support.
The two “big” market-moving headlines came from the Fed and President Trump. On Wednesday, the Fed released the minutes of its most recent meeting and it showed Fed officials want to unwind the massive balance sheet. Since the 2008 financial crisis, the Fed has been the single largest buyer of assets on the Street and the fact that they are now going to begin selling led many people to worry that there will not be enough demand to absorb the selling. Clearly, the Fed will do its best to unwind its massive balance sheet in a measured/quiet fashion. That’s why the real impact on Wall Street is still unknown.
The other big event occurred Thursday evening (eastern time) when President Trump bombed Syria after the government used banned chemical weapons on its citizens. Gold and silver soared on the news and the U.S. dollar fell. The fact stocks did not fall massively on these two some-what disconcerting events illustrates how resilient the bulls are right now. Technically, the next level of support to watch is the 50 day moving average for the major indices.
A Closer Look at What Happened Last Week…
Mon-Wed Action:
Stocks were relatively quiet on Monday as investors digested a quiet day of economic data. The ISM manufacturing index hit 57.2 in March which beat the Street’s estimate but was lower than February’s reading. Construction spending grew by 0.8% in February to the highest level in nearly a year. Separately, monthly auto sales numbers were released throughout the day, with Ford, General Motors and Fiat Chrysler all reported declining numbers. Sales totaled 16.62 million for March, according to Autodata.
Stocks were quiet on Tuesday on a very quiet news day. The bulls showed up on Wednesday morning higher after ADP said private employers added a lot more jobs than expected. The bulls didn’t hang out for a long time because at 2pm EST, the Fed minutes showed Fed officials want to start unwinding the central bank’s massive $4.5 trillion balance sheet later this year. That led many people to sell stocks and the market experienced its largest single day negative reversal in 14-months.
Thur & Fri Action:
On Thursday, the market was very quiet after President Trump said he is willing to act alone on North Korea if China does not step in. That comment came right before Trump met with China’s President Xi Jinping. Separately, Rex Tillerson, Secretary of State, also signaled the U.S. would seek to remove Bashar Assad from power in Syria after a suspected chemical attack.
After the close, Trump ordered an air-strike at several strategic military sites in Syria in response to the chemical attack. Stocks were quiet on Friday even as investors digested several less than thrilling data points. The Labor Department said, U.S. employers only added 98,000 jobs in March, which missed the Street’s estimate of 180,000. Meanwhile, the unemployment rate slid to 4.5% from 4.7%. Wage growth was not as strong either, with average hourly earnings up by 2.7% on an annualized basis. Separately, Trump met with Xi in Mar-a-Lago and agreed to a 100-day plan to discuss trade issues.
Market Outlook: Strong Action Continues
The market remains strong as the major indices continue to trade above support. As always, keep your losses small and never argue with the tape.
