Brexit Time Again: As Parliament Votes, U.S. Stocks Have Mixed Tone With Boeing Down

Brexit is back in the news today, with a key parliamentary vote scheduled as the March 29 deadline looms. 

If you remember, the last time Parliament voted on a Brexit plan, back in January, it got overwhelmingly rejected. Since then, Prime Minister Theresa May has made changes. Earlier this week, May announced that the European Union had agreed to those changes, and now U.K. lawmakers get another crack at it. The vote is scheduled for Tuesday evening, meaning the heart of the U.S. trading day. It’s unclear how things will go, but media reports say it could be close.

It looks like Monday’s impressive rally might ease a little today, but it did spill over into European and Asian markets amid hopes for progress on Brexit. Also, crude prices snapped right back from weakness late last week and are back above $57 a barrel. Crude’s performance remains a pretty good way to measure economic demand. 

Boeing Co BA lost more ground in pre-market trading as investigations into the weekend crash continue. This means the Dow Jones Industrial Average ($DJI) could again find itself under pressure from BA, perhaps diverging from larger indices.

Heavy Data Load Underway

This week is a big one for data, starting with yesterday’s pretty decent retail sales for January that helped spark Monday’s gains. It probably came as a bit of a relief to see that number rise 0.2% after falling a revised 1.6% in December. It looks like the December slide might have been shutdown and market sell-off related. Also, probing a bit further into the January data, the core number rose a solid 1.1%, which Briefing.com said could cause some analysts to upgrade their quarterly growth expectations.

Today and tomorrow, the big numbers to consider watching are the consumer price index and producer price index (CPI and PPI) for February. Something to remember about both is that the month brought some really bad weather to much of the Midwest and Northeast, so if any numbers come in short that could be the primary reason. Perhaps there just wasn’t the demand. Weather does go into it. When you look back at the jobs report for February, the areas that saw the biggest hiring declines were construction and leisure, both of which also sometimes depend on weather. Inflation might come up short for exactly the same reasons.

The first number (CPI) came in this morning. It rose 0.2% in February, in line with expectations and up from flat in January. Core CPI moved up 0.1%, a bit below expectations and down from 0.3% a month earlier. At first glance, nothing in the numbers looks too surprising or market-moving. Consensus for PPI stands at 0.2%, according to Briefing.com.

The week’s other big data are durable goods on Wednesday and January new homes on Thursday. For those thinking we just had new home sales last week, we did, but those were December’s. The government shutdown delayed some of the data, so now the reports are all bunched together. University of Michigan preliminary March sentiment early Friday is another possible economic barometer on the way later this week.

Transports Reverse Course 

After 11-consecutive lower sessions, the Dow Jones Transportation Average ($DJT) made a U-turn Monday to rise nearly 2%. The 11-day skid was its longest since 1972, and might have raised some eyebrows among market veterans who see transports as a barometer of economic demand. Airlines, railroads, and package delivery companies climbed almost across the board, perhaps a sign of pent-up demand after the long drought.

Small-caps, another sector under the weather lately, also rebounded Monday. This sector, like transports, is sometimes seen as an economic barometer. 

Speaking of barometers, most of last year saw so-called “FAANG” stocks provide momentum to the long rally that carried U.S. stock indices to all times highs by September. The FAANGs, like most other popular stocks, had to go sit in the corner in Q4 and plunged into correction territory. That’s long behind, and Monday’s performance—particularly in shares of Apple Inc. AAPL and Facebook, Inc. FB—hinted that the FAANGs might have the potential to once again be momentum leaders.

AAPL got a lift when a major bank upgraded its stock. FB shares, which are up almost 40% from their Christmas Eve low, seem to be responding to a growing perception that the company might have put at least some of the privacy concerns behind it. FB also appears to be doing a good job of taking down so-called “fake news” from its platform. The main concern last year for FB was possible government action on the privacy issue. That hasn’t necessarily gone away, but the company appears to be doing what it can to get back into investors’ good graces.

Talking Psychology as FAANGs Get Back in Swing

Typically, it’s not a good idea to get into the “psychology” of the market. Experienced investors tend to focus on the raw numbers and what executives have to say about their business plans, as well as the global economy and central banks. Still, Monday’s action did seem to have a little psychology at work. Why? Because of AAPL and FB’s performance and how the rest of the market seemed to respond. To many investors, it appears that when the world is right with AAPL and FB, the world is right in general. That’s certainly arguable, and might not always be the case, but it appeared to drive much of Monday’s enthusiasm.

It wasn’t just FAANGs lifting Info Tech on a day when the sector rose more than 2% to lead all the S&P 500 sectors. Over in the semiconductor space, shares of Nvidia Corporation NVDA took off Monday, rising 7% after the chipmaker said it would buy Mellanox Technologies, Inc. MLNX, a maker of Ethernet switches and adapters that connect computers to each other. This is a move analysts said could give NVDA a foothold in the competitive cloud space. Other chip company shares also gained some ground to start the week.

One challenge the market had last year was seeing so much of the positive momentum bottled up in just the five FAANG stocks. Once they started to go south, everything else lost ground, too. If the entire Info Tech sector could start to hum and we see more days like Monday, that might be a positive sign for the overall market.

Technically, things look pretty positive, too, as the week’s second day gets underway. The S&P 500 Index (SPX) climbed solidly back above its 200-day moving average of 2751 on Monday, and now isn’t too far from the recent highs above 2800 reached earlier this month before last week’s slump. The 2816 level looks like it might be the one to consider keeping an eye on, because that’s right where things turned around a week ago. Some analysts think the market might bounce back and forth in a relatively narrow range between last week’s lows and highs until there’s more clarity around the China trade situation.

Investors might not want to lose track of the dollar index this week, either. It’s down from last week’s highs but still above 97. Slowing Chinese and European economies have the tendency to pull more investor money into the greenback, and that can hurt U.S. multinationals. If today’s Brexit vote fails, that could pressure the pound and put more strength into the dollar, too. At last glance, the dollar was gaining vs. the pound after legal questions arose about Prime Minister May’s deal.

Neck and Neck Tech: Both the FAANGs (candlestick) and semiconductors (blue line) are off to strong starts this year, with both outpacing the S&P 500 Index (SPX) so far. Data Source: Nasdaq Global Indexes, NYSE.  Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results. 

Can Oracle Provide Insight?: It’s not a big week for earnings, but Oracle Corporation ORCL is scheduled to release its fiscal Q3 numbers after the close Thursday. As a company with a huge worldwide tech presence, ORCL’s earnings and call might offer investors another chance to see how big companies are doing as the European economy continues to stagnate and Asia slows. ORCL also provides a chance for investors to get a fresh look at the cloud computing space, where ORCL is a major presence but where competition continues to mount. Look for an ORCL earnings preview article here on Ticker on Thursday morning.

Flight Risk: After last weekend’s tragic airplane crash in Ethiopia, a number of airlines grounded Boeing’s 737 Max 8 aircraft, and shares of BA slid nearly 6%. Two of these planes have gone down over the last year, though so far no one has determined if the crashes are related and the Federal Aviation Administration (FAA) said Monday it considers the planes airworthy. For market veterans, this might bring back memories of 1979 when a DC-10 crashed in Chicago, raising concerns about that aircraft. BA shares fell again in pre-market trading Tuesday as analysts noted that a worst-case scenario could cost the company billions of dollars.

This does serve as a reminder that investors in stocks like airlines and airplane makers do face some risk, however minor, of these sorts of events. Any incident has the potential to immediately take prices down, as many investors tend to leap before looking at times like these. The better way might be to keep a close eye on things and wait for the full story to be evident before taking action. It’s never a good idea to let fear be your guide.

Could Cheap Credit Grease Loan Business?: Despite Monday’s U.S. stock rally and some positive comments on the economy from Fed Chair Jerome Powell, there wasn’t a lot of movement in U.S. Treasury note prices early this week. The 10-year yield remained near recent low levels under 2.65%, though some analysts say it’s unlikely the yield could fall under 2.6% anytime soon unless global growth weakens further. 

Persistent low yields—which some analysts blame on a slowing global economy—haven’t been particularly great news for the Financial sector, in part because banks tend to make more money when they can issue loans with higher rates. Financials fell nearly 2.7% last week, and trail the SPX’s gains so far this year. However, there may be a silver lining. Yields at these levels, which are down from above 3.2% late last summer, could raise demand for loans and give banks more business. That might be something to check next month when the major banks report Q1 earnings and executives discuss their business environment.

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