By Pete Biebel , Senior Vice President
That maxim can be interpreted a couple different ways. It could be suggesting that none of the news one hears is positive. All news is bad news. A second meaning could be that the lack of any new news is actually good news. Like when your teenager is out for the night, getting no call from the local police is probably good news. The week ahead is a minefield of potential bad news. A quiet news week might be a very welcome occurrence.
This past week was one with some very noisy headlines, but it was a surprisingly quiet week in the stock market. Following a week with a 4 ½% gain, the S&P 500 Index (SPX) chalked up a gain of just under ½% last week. SPX topped out just below the 2900 level in the prior week. That index briefly poked above 2900 on both Monday and Tuesday of last week but failed to make any significant progress above that level and failed to print a daily close at or above that level. With stories of more trade war controversy, riots in Hong Kong and attacks on oil tankers in the Gulf of Oman, it was, surprisingly, the narrowest range week in two months. All the news was no news for stocks. Net for the week, the Dow Jones Industrial Average (DJIA) gained 0.41% and the NASDAQ Composite Index tacked on 0.70%.
On Wednesday, we’ll get the known new news. We know the FOMC will end its two-day meeting and issue its policy statement at 2:00 EDT that afternoon. A half-hour later, Chairman Powell will hold his press conference. There’s a real risk that any news would be bad news that afternoon. The market expects only about a 10% chance the Fed will announce a rate cut that day, so no rate cut is no news. But, the market does expect to hear some very dovish cooing in the press conference. If the comments do not strongly project a likely rate cut in July, it could be bad news for stocks. Just last week, good news on Retail Sales and Industrial Production was viewed as bad news because it reduced the odds of a rate cut. Ironically, if the message from the policy statement and the press conference is that a July cut is a high probability, then traders might conclude that the Fed is telling us that the U.S. economy is in bad shape.
Last week saw a couple examples of some fairly significant bad news being treated as no news by the market. Understandably the market shrugged at news of Hong Kong police firing tear gas and rubber bullets at protesters. Sad news for them, but no news for us. Then the market also seemed to disregard news of the attacks on two oil tankers in the Gulf of Oman. Sad news for them, but no news for us, yet. Prices for crude oil spiked higher Thursday morning, but stocks ignored the news. The price of Crude Oil recovered much of the previous day’s loss, but that was it. A sell-off on Wednesday in crude was caused by an EIA announcement lowering its forecast for global oil demand growth in 2019. Escalation of either the Hong Kong protests or tensions in the Middle East could be bad news items this week but would probably be treated as no news by the U.S. stock market.
The precious metals market, and gold, in particular, enjoyed perhaps the strongest reaction to those events. Gold rallied steeply during the first week of June as the U.S. Dollar declined in value. Late last week, gold rallied steeply again even as the value of the Dollar strengthened. The increasing geopolitical tension no doubt helped gold shine last week. Continuing escalation particularly of hostilities in the Middle East would likely continue to be good news for precious metal prices.
Regarding developments in the looming trade war with China, no news would probably be good news for the market. Signs of real progress would probably be treated as good news but seem very unlikely this week. Far more likely are headlines announcing new threats from either side. So, just a lack of negative news could be good news.
While SPX failed to make any significant forward progress and failed to clear the 2900 barrier, it did manage to hold above its 50-day moving average all week. SPX got no help from the Technology sector which was just flat for the week. Only two U.S. equity sectors had losses last week; Energy and Industrials were each down about ½%. The big winner was the Consumer Discretionary sector; after gaining about 3% in the prior week, it tacked on another 2% last week. Five of the most heavily weighted stocks in the sector had gains of 2% or more for the week.
Last week I wrote that I was watching two price levels on SPX for an indication of the market’s course in the coming weeks and months. “On the upper end, watch the 2925 level. Even reaching that level would pretty much confirm that the May rout was just a short-term timeout. Clearing 2925 would likely be followed by new highs though probably not much beyond the 3025 level. Heading the other direction, the 2750-2775 area would be critical. Even reaching that area would strongly suggest that the early-June rally was indeed a bull-trap. Breaking below May’s closing level of 2752 would likely be followed by at least an additional 3 to 4% decline.” Last week’s nothing market means that there’s no new news with respect to those key levels.
If stocks are going to move much in either direction before Wednesday afternoon, it will likely require a major catalyst. The market typically sees uninspired trading coming into the FOMC announcement. But, it’s a pretty safe bet that volatility will spike at 2:00 EDT on Wednesday afternoon.
As was apparent last week, even good economic news may not be viewed as good news for the market.
|Monday 6/17/2019||Empire State Manufacturing Survey||17.8||10.0|
|Housing Market Index||66||67|
|Tuesday 6/18/2019||Housing Starts||1.235mm||1.240mm|
|Wednesday 6/19/2019||FOMC Meeting Announcement and Press Conference|
|Thursday 6/20/2019||Initial Jobless Claims||222K||217K|
|Philadelphia Fed Business Outlook Survey||16.6||14.0|
|Current Account Deficit||$134.4B||$123.5B|
|Leading Indicators, M/M||+0.2%||+0.1%|
|Friday 6/21/2019||PMI Composite Flash||50.9||51.0|
|Existing Home Sales, SAAR||5.190mm||5.290mm|
Links to previously published commentaries can be found at benjaminfedwards.com/Company News/Blog/Market