Stock Market Update: Have We Reached Cruising Altitude Yet?

And that’s all I’m gonna say about that.

Macro Matters

Last week, stocks stalled as the S&P approached its 200D. With only 3-points to go to tag the 200D, traders were frustrated as the SPX traded in a 1-point range all week long. This week, China came back online after a week of holiday closure, OPEC promised cuts, US-China trade talks started and US Government Shutdown Showdown looked ready to resolve.

And this followed the news last Friday of the QE to infinity story“Fed debating if balance sheet should be regular tool.” If there were Sellers about to step up, they quickly realized they needed to pause. Here’s a lifted tweet to showcase both sides of the argument proposed by Greg McKenna.

With that, the Fed doesn’t seem in a hurry anymore to run-off their balance sheet or raise rates to get “in front of inflation” (which crashed with oil) or to combat an overheating economy (which suffers from synchronized global growth slowdown). I will be watching, however, for the 10 year Treasury yield to rise on any rebound in oil prices, recovery in inflation expectations, and continued strength in the US dollar.

Earnings Recession Fears

Wall Street’s expectations for Q1 2019 earnings growth has been falling, and is now negative.

stock market earnings growth rate chart

From 1990 – present, there has only been 1 other case in which earnings growth fell from more than 20% to less than 0% within 1 year. – Troy Bombardia

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