E Market Briefing For Monday, Jan. 28

The political circus persists; but has not intimated the market. That's very telling in that it supports our view of prospects still favorable for extensions, to the upside, regardless of 'unfinished downside business' that may follow. For the moment: China, the Fed, and key earnings reports are all on tap. If it's a 'Superbowl of Earnings', can both teams give a mediocre showing? 

This matters, because the market is suggesting it anticipated something of a positive nature, before negative pressures return; even if much of what we'd been expecting to achieve this upside, relates to short-covering or strategies that reflect too many 'assumptions' that the market must reverse, simply as a result of running higher into our targeted S&P 'congestion zone', which of course is the area of market swings preceding the December plunge we'd look to trough-out, roughly in the 2300-2400 S&P area, as it did. 


As the overall conditions are essentially ongoing; let's summarize where the key concerns stand with respect to many variables being pondered by most market observers, whether or not the market seems particularly concerned:

  • Earnings flow is generally mixed; with conservative guidance; and key FANG stocks have potential to roil markets somewhat in the new week;
  • Markets debate whether a higher multiple will be justified 'should' we get a 'trade deal' with China, since few expect robust profitability for now;
  • Germany's slowing growth prompted ECB policy to be toned-down as Draghi noted, and that preceded the 'calmer' Fed 'contextual' remarks, as we had assessed it;
  • Perhaps the foregoing results in a tempered pace of balance sheet roll-off, although you're not going to get QE-style help to levitate markets;
  • The 'window' precluding buybacks ends soon; which may boost upside at least temporarily; although again buybacks are mostly an artificial way of imaging earnings better than reality (benefiting insiders most);
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