Commentary: Paul Ebeling on Wall Street

Commentary: Paul Ebeling on Wall Street

$DIA, $SPY, $QQQ, $RUTX, $VXX

Looking at this market rally +

The current stock market rally looks very cool on the surface. The DJIA rose 1.6% last week, with the S&P 500 + 1% and the NAS Comp up 0.9%. All are closing in on their 26 July all-time highs.

But, the stock market rally is seeing sector rotation. Many big winners in Y 2019 have suffered big losses, triggering long-term sell signals.

They included these: Shopify (SHOP), Chipotle Mexican Grill (CMG), Universal Display (OLED), McDonald’s (MCD), Paycom Software (PAYC) and Alteryx (AYX).

Now, stocks with low PERs (price-earnings ratios) have come to the forefront. Financials were big winners as the 10-yr Treasury yield skyrocketed on China trade hopes and upbeat US economic data. 

Breaking out are: JPMorgan Chase (JPM) and Ally Financial (ALLY), with Goldman Sachs (GS) stock and others seeing buy in points.

The Big Q: Will Treasury yields continue to drive North?

That is the Key question for Dow financial giants JPMorgan and Goldman Sachs.

Spiking Crude Oil prices, a GM strike and weak China economic data could revive global economic growth fears.

This week’s FOMC meeting will be Key for Treasury yields and the stock market rally. The odds for a 1/4th pt Fed rate cut Wednesday fell to 80% Friday, with a 33% chance for another move in October.

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) plunged 5% last week. The iShares Expanded Tech-Software Sector ETF (IGV) fell 2.2%. The VanEck Vectors Semiconductor ETF (SMH) rose 1.9%, just below record highs.

The +

The Fed is set to cut interest rates this week and may still not be done delivering monetary stimulus to the economy yet this year.

Having already reduced their benchmark in July to 2.0%-2.25%, Chairman Powell and colleagues will pare another 25 bpts Wednesday to support the slowing economy, according to a survey of economists.

Among the Key questions that will be asked of Chairman Powell is whether he’s preparing for more than the “mid-cycle” adjustment he previously claimed was underway.

For now, economists think he will act again this year before leaving the target range at 1.5%-1.75% for an extended period.

Also worth watching is how many policy makers will dissent after regional Fed Presidents Eric Rosengren and Esther George voted in July in favor of keeping rates on hold. Let’s see.

The Fed will be followed Thursday by the Bank of Japan as it comes under pressure from investors to follow its US and Euroarea counterparts in loosening monetary policy more.

Also meeting are the central banks of Brazil, South Africa, Norway, Switzerland and the UK.

We cannot forget the investors will have a sharp eye on the US-China trade tensions after last week’s notice that The Trump Administration officials had discussed offering China a limited trade agreement that would delay and even roll back some US tariffs.

In the US and Canada this week

The FOMC officials start meeting Tuesday before issuing their decision on Wednesday with Chairman Powell addressing reporters in a PC afterward.

With talks with China set to restart in October, there will be monitoring of Twitter and local Chinese media for signs relations between the 2 sides are improving.

There are housing starts numbers Wednesday morning and jobless claims Thursday. Thursday will also see the release of current account data for the Q-2.

In Canada, the election campaign will enter a 2nd week.

In Asia this week

The Bank of Japan meets Thursday although pressure from markets to add to its stimulus has weakened as investors take a less dim view of the economic outlook and the trade dispute. That leaves most economists expecting the BOJ to keep policy on hold as it conserves its tooling. Still, a surprise Fed decision or concerns over the economic hit of a looming sales tax hike could still prompt the central bank to act.

Monday early brings a lot data from China that will indicate how its already slowing economy is faring. We see industrial production remaining under pressure after slumping to a 17-year low of 4.8% in July, while there are few signs retail sales picked up in August. Fixed asset investment is also seen as sluggish.

On Tuesday, the Reserve Bank of Australia (RBA) releases minutes of its latest meeting at which it signaled its in no hurry to ease again. And Indonesia’s central bank is expected to take a pause after 2 back to back rate cuts.

Remember, it is your money, so pay attention it is your responsibility.

Have a terrific week.

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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