Stocks Chopped Around Last Week As The Intermediate Market Cycle Winds Down

Summary:

• The S&P 500 rose by 6 points last week, an increase of 0.2%.
• The market slipped when Fed Chairman Jerome Powell did not affirm intentions to cut interest rates, but recovered on strong job numbers.
• Our projection this week is for stocks to chop around and then decline, perhaps below 2900.

The great bull run of 2019 paused mid-week, only to come suging back by on Friday—erasing the week’s losses.

Federal Reserve Chairman Jerome Powell disappointed market participants by not acknowledging a need for a reduction in interest rates. More specifically, he described low inflation as “transitory” rather than “persistent,” suggesting an expectation that higher inflation rates would return. A drop in the S&P 500 of 28 points in two days suggested investors expected more talk of a rate cut.

Speaking of the Fed, President Trump wants to appoint more dovish officials to its governing board. However, it was announced last week that his most recent pick Stephen Moore has withdrawn his name from consideration. This occurred however just after Moore appeared on Bloomberg insisting that he was “all in”.

Earnings season continued to push stocks in both directions. For example, Apple Inc. AAPL gained 5% on Tim Cook’s comments about potential in the Chinese market, while Alphabet Inc GOOGGOOGL plummeted 10% after a significant revenue miss. While 76% of companies have beat earnings expectations, this occurred as they continue to lower guidance by a ratio of 4:1, according to FactSet.

Looking at the global macro data, we continue to see a mixed picture. On the one hand, manufacturing PMI was slower than expected in the U.S., China, U.K. and Germany. On the other hand, consumer confidence and nonfarm payrolls in the U.S. came out stronger than expected, even as manufacturing job growth has been flat for several months.

S&P 500 (SPX) Daily Chart

Our approach to technical analysis uses market cycles to project price action. Our analysis of the S&P 500 is for stocks to begin to roll over, as shown on the chart above. We may see some choppy action early in the week, possibly testing the 2954 area. However, we expect a failure by week’s end, perhaps pushing SPX below 2900.

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