Market Averages Drop for Second Week Straight

The past week of market activity in many ways felt much like a repeat of the previous week. As we approached the beginning of each week, a headline was printed that put investors on shaky ground and introduced new volatility to the market. This culminated in a large negative implied open in the Index Futures on Sunday evening and the markets followed through with a deeply negative performance on Monday. However, just like the previous week, as these fears that built up over the weekend began to abate, the indexes rallied throughout the remainder of the week. Although ultimately the S&P 500 index ended down on the week, marking the second down week in a row. The event that caused much of the volatility this week was the anticipated beginning of new tariffs from the U.S. on Mexico, Canada, & China. Once it was announced on Monday that the tariffs on Mexico & Canada were at least being put on hold temporarily if not eventually scrapped altogether due to contingency conditions, this gave a major boost to the market. Additionally, on the China-front, there was speculation that new blanket tariffs on China from the Trump admin could be as high as 60% or more. When it was announced that the actual tariff would be only 10%, this was seen as a major relief by investors. As fears surrounding these tariffs assuaged themselves, investors then could turn their focus to the macro data and fresh earnings that were being reported last week. The January Jobs report had little upside effect on the markets as it was largely in-line with expectations, the exception being average hourly earnings had a strong upside beat. Many around the market were hoping for a slightly soft report to boost the odds of a rate cut but the January print did not deliver as it was fairly strong and the large gains in hourly earnings could only stoke inflationary pressures. As far as the earnings reports go, the actual results from the major reports we were watching were largely quite strong. Some of the stocks took a hit from negative reactions to forward guidance but the actual posted results were mostly satisfactory. Now that roughly two-thirds of S&P 500 companies have reported their Q4 results with around 77% of them beating EPS estimates, we are close to being able to put another strong earnings season behind us and remove this source of volatility from our radar. To recap the market internals as of the close on Friday, 57% of S&P 500 stocks are remaining above their 200-Day moving average which is a healthy bullish sign for the market. Additionally, despite the uptick in volatility, the NYSE Advance/ Decline index eked out a new 1-month high and has not made a near-term low. This is strong evidence of broad participation to the upside across the market. For the next few weeks, as more companies continue to report their Q4 results and if the results continue to be positive along with the market internals holding up, we feel these factors will help to guide us through any short-term noise and volatility surrounding fresh policy from the new Administration and ultimately these factors will help to push the market higher in the intermediate term.

Want to see how I take advantage of market volatility? click here:

Key Events to Watch this Week

CPI/ PPI Inflation Reports
January Retail Sales Report
Fresh Q4 Earnings
New Policy Actions

In the coming week, the market will be looking to get itself out of a rut and get back in the positive column for the week. To break that streak it will largely depend on these key events we are watching. As talks regarding tariffs have heated up recently, this has rekindled investors’ fears regarding their possible inflationary effects. This week, two major inflation reports will be published, and they will certainly draw the attention of many traders. First will be the January CPI report due on Wednesday morning followed by the PPI inflation report due the following morning. The hope is that these reports will show some further progress on reducing inflation firmly back to the desired target range. Additionally, on Friday morning, prior to the market open, the January U.S. Retail Sales report will be released. This report is one of the strongest barometers for the strength of the U.S. consumer and their willingness to continue to spend. Expectations are that this report will not show a ramp-up in spending by the consumer, which could be beneficial regarding inflation, but the key here and what the market will want is for the report to show that the U.S. consumer is remaining strong and is still engaged in the economy. Although this week does not carry the ‘high stakes’ feel when it comes to the expected earnings reports, as last week did, there are still a large number of major companies still on deck to report their results. Among the top companies that we will be tuning in to see their Q4 results are McDonalds Corp., Shopify Inc., Cisco Systems, Inc., & Applovin Corporation. There are of course numerous other earnings reports due, but these are a few of the most intriguing in the eyes of our team. Finally, as we have learned in the past two weeks, the new Administration is off to a furious start with new policy moves. Until there are signs of this slowing down, we feel it would be wise to at least be mindful of the fact that at any moment during the trading day there could likely be a fresh market-moving headline released. Even after the market locked in its second consecutive down week, we still feel that this is a market that wants to go higher. At current levels, the S&P 500 index is only 1.6% off of its all-time high, so as some of this short-term volatility fades, once we clear this hurdle, we feel the market will resume trending higher.

Thank you for reading this week’s edition of the Weekly Market Periscope Newsletter, I hope you enjoyed it. Please lookout out for the next edition of the newsletter as we will give you a preview of the upcoming week’s important market events.

Thanks,