Tariffs Driving Market Action

U.S. markets closed mixed on Wednesday following the resignation of President Trump’s top economic adviser, Gary Cohn, but showed strength in the final hour of trading.

The departure of Cohn elevated Wall Street’s concerns over the planned tariffs on aluminum and steel imports that could get signed as early as this week.

Near-term support levels held while volatility eased following the morning and midday nervousness.

The Russell 2000 rose 0.8% after trading to a peak of 1,576 into the closing bell and holding the 1,550 level on the opening weakness. The Nasdaq was up 0.3% after pushing a high of 7,403 while clearing 7,400 for the first time since late January.

Although this level failed to hold, it was another bullish signal for the market.

The S&P 500 slipped 0.1% after trading to a low of 2,701 while holding 2,700 for a third-straight session. The Dow was down 0.3%, after tumbling to a low of 24,535 and briefly falling into negative territory for the year.

The close above 24,800 keeps resistance at the 25,000 level in play.

Technology rose 0.6%, Health Care advanced 0.5%%, and Real Estate was up 0.4% and were the only sectors that showed strength. Consumer Staples dropped 0.9% while Energy and Utilities stumbled 0.8% to pace sector laggards.

The U.S. MBA mortgage market index rose 0.3%, while the purchase index sank 0.5% and the refinancing index rose 1.5% for the week ending March 2nd. The average 30-year fixed mortgage rate rose just 1 basis point to 4.65%, but is at the highest level since January 2014.

The Commerce Department reported that the trade deficit grew 5.0% to $56.6 billion in January. This represents the highest level since October 2008 and topped expectations of an increase for a deficit of $55.1 billion.

ADP reported private payrolls increased 235,000 in February, topping the 205,000 forecast.

Q4 nonfarm productivity was flat, and unit labor costs were 2.5% higher, versus the preliminary 0.1% decline in productivity and 2% rise in labor costs.

The Beige Book revealed economic activity expanded at a modest to moderate pace across the 12 Federal Reserve Districts in January and February.

Consumer spending was mixed, as non-auto retail sales increased in just over half of the Districts while auto sales declined or were flat in every District. Overall, the report was generally supportive of a 25 basis-point tightening at the upcoming March 20, 21 FOMC meeting.

January Consumer Credit checked in at $13.9 billion, well below expectations of $17.4 billion for the month.

Atlanta Fed’s Q1 GDPNow estimate was trimmed to 2.8% from 3.5% previously.

Market Sentiment – Fed Governor Brainard said stronger global growth and very substantial U.S. fiscal stimulus do give her greater confidence in the outlook for inflation.

She said that a couple of years ago, strong headwinds sapped the momentum of the recovery and weighed down the path of policy but those headwinds are now shifting to tailwinds, and the reverse could hold true.

Atlanta Fed’s Bostic said trade wars aren’t winnable and added that protectionism isn’t helpful to the broader economy. He said it’s a very uncertain time and believes the markets are reflecting that. He touched the topic of crypto-currencies by saying they are speculative assets.

The iShares 20+ Year Treasury Bond ETF (TLT) showed midday strength after testing a high of $118.68 before finishing slightly lower. Resistance at $118.50-$119 held for the fourth-straight session.

Upper support at $118-$117.50 held into the close with risk to $116.50-$116 on a move below the latter.

Market Analysis – The Russell 2000 ETF (IWM) made a run to $156.93 into the closing bell to extend its winning streak to four-straight sessions.

Near-term resistance is at $157-$157.50 with a close above the latter leading to a possible push towards $160 and fresh all-time highs. Rising support is at $155-$154.50.

RSI is in a nice uptrend with near-term resistance at 60. A close above this level could lead to a run towards 70 and January resistance. Support is at 50.

The Industrials Select Sector Spider (XLI) showed weakness throughout the session with the low reaching $75.24. Near-term support at $75-$74.50 held with a close below the latter being a slightly bearish development.

Resistance is at $76.75-$77.50 and the 50-day moving average.

RSI is struggling with short-term resistance at 50 with continued closes above this level leading to a possible test towards 60. Support is at 40.

Volatility Index – The S&P 500 Volatility Index ($VIX) traded up to 20.49 intraday with lower resistance at 20-21.50 holding for a third-straight session.

The fade to 17.52 ahead of the closing bell held upper support at 17.50-17 with a move below these levels being continued bullish signals.

 

All the best,
Roger