WAITING FOR THE NEXT CATALYST

The major US stock market averages opened slightly lower again this morning (Dow -50 pts; SPX -.4%). We’re in a holding pattern with very little news. Healthcare and energy sectors are faring the worst, down more than 1%. Banks and transports are treading water. European markets are poised to close nearly flat, but China’s stock market continues to power ahead on expectations for a trade deal. In fact, CNBC reports President Trump is “pushing hard” to ink a deal in order to improve his chances of re-election. Commodities are slipping today as the dollar strengthens. WTI crude oil dipped slightly to $56.35/barrel. Bonds are trading a bit higher today as yields tick lower. Long term Treasury bonds are faring the best, with the iShares 20+ Year Treasury Bond ETF (TLT) up about .4%. The 10-year Treasury yield, which finally broke out of its tight range last week, is fading back toward 2.69%. That is to be expected—Treasuries should rise when the stock market falls.

On his CNBC show Mad Money, host Jim Cramer had this to say about yesterday’s stock sell-off: “machine-driven.” The indiscriminate selling was a result of hedge funds’ trading algorithms on “autopilot.” This is true. The market didn’t decline because of any change in the outlook for corporate earnings or economic growth. It fell for technical reasons; we’ve made up most of the 2018 correction decline and now it’s time to pause and wait for the next catalyst.

China’s government set its 2019 GDP growth target within the range of 6% to 6.5%. In other words, the country is on pace for its slowest economic growth in 10 years. In addition, the government’s budget deficit will rise to 2.8% of GDP from 2.6% last year. That’s presumably due to increased government stimulus to counteract slowing economic growth. Accordingly, the country’s banking regulator just reduced bank reserve requirements in order to perhaps spur lending. These are signs of the typical response to economic headwinds, which we last saw in 2016.

Payroll processor ADP estimates the US economy generated 183,000 net new private sector jobs in February. That’s roughly in line with expectations. The big surprise within the report, however, was a huge upward revision in new jobs for January (from 213,000 to 300,000). The big takeaway is that the labor market is still very strong despite a step-down in economic growth and growing geopolitical tensions. Bloomberg says the report’s details “highlight ongoing strength in the goods-producing sector, suggesting little impact from trade war uncertainties.”


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