Market volatility increased this week as the War on Trade continues to gain momentum. Politics and geopolitics seem to always bring turbulence. The Market is taking this whole issue very much in stride. International stock markets are feeling much more pressure than the US. China’s Shanghai Composite fell 20% from its highs. The S&P is up on the year and merely 2.5% away from its all-time high. Does this surprise you all things considered?
The gains in July have come in the face of such confusing and concerning rhetoric and actions which threaten the global economy. The S&P is pushing up against a pretty substantial resistance level near 2800. This level has proven to be a bit of a ceiling of late. That coincides with DOW 25K.
Earnings season has officially begun. The focus is on facts. Corporate America is reporting 2nd Quarter results. Expectations are high. The results should be strong. Earnings are growing over 20% in 2018, the fastest rate in 7 years. Importantly, revenues are growing fast too. This means companies are selling more stuff. Revenues are expected to grow 8.7% in Q2, also the fastest pace since 2011. It’s driven by increasing demand. Earnings drive stock prices. Management teams will likely be cautious with their forward outlooks, as uncertainty around trade will cloud some of their thinking.
The corrective price action which has been in place for 6 months continues to work its way through. The process is taking longer than expected, but is working. We are seeing a series of higher lows in place, a very positive sign. Importantly, strength has rotated within sectors as Tech continues to demonstrate a new, relative sluggishness while Consumer Discretionary, Energy and now Health Care have taken the baton. This was required for the next stage of the rally or said rally likely faced defeat. There appears to be more to come for the rest of the year, as long as a full-blown Trade War does not develop, which certainly threatens everything Market related.
Have a nice weekend. We’ll be back, dark and early on Monday.