Market Looks Like it is Trading with a Recession in Mind, Though the Economy is Strong

Market Looks Like it is Trading with a Recession in Mind, Though the Economy is Strong

$DIA $SPY $QQQ $RUTX $VXX

The US economy grew moderately in Q-4, the government confirmed, and may be facing a rocky road in early Y 2020 on the notion that coronavirus will hobble it, and bring on a recession.

The economy grew by an unrevised 2.3% in Y 2019, the slowest annual growth in 3 yrs missing the White House’s 3% growth target.

Data Thursday suggested some stabilizing in business investment in January and the labor market remained solid, that failed to calm investors.

Wall Street’s major stock market indexes dropped for the 6th day running moving into correction mode. The yield on the 10-yr US T-Note tapped an all-time low for the 3rd straight day.

Financial markets are looking at the coronavirus epidemic as the catalyst that could break the longest economic expansion on record, now in its 11t year.

President Trump Wednesday assured Americans the risk from coronavirus remained “very low,” and said public health officials were preparing to do “whatever we have to,” to deal with the outbreak.

The coronavirus outbreak is challenging the Fed’s view to keeping monetary policy on hold at least through Y 2020.

There is no evidence that the coronavirus epidemic is impacting the US economy, or that it will, economists expect the struggling manufacturing sector to take a hit through supply chain disruptions and exports, but that may not happen either.

The stock market sell-off if it continues could erode consumer confidence and hurt consumer spending.

Economists also worry that corporate profits could come under pressure and undercut the labor market, the economy’s Key pillar of support.

Contract signings for existing US homes surged in January, rising the most since October 2010 after slumping a month earlier, adding to signs of more momentum in the housing market.

The Fed needs to move aggressively to cut borrowing costs and cushion the economy from the spread of the new coronavirus.

Traders of futures contracts tied to the Fed’s policy rate are betting on it.

Thursday they were pricing in about a 54% chance of the Fed starting to cut rates as soon as next month and trimming an extraordinary 3/4th of a percentage point by September, according to CME Group’s FedWatch.

Thursday Chicago Fed President Charles Evans told a central banking conference in Mexico City that with limited room to cut interest rates and a downward pull on inflation, “policymakers must commit to provide extraordinary accommodation in order to meet their mandate.”

Thursday, the major US stock market indexes finished at: DJIA -1190.90 at 25766.61, NAS Comp -414.29 at 8566.52, S&P 500 -137.63 at 2978.76

Volume: Trade on the NYSE came in at 1.8-B/shares exchanged

  • NAS Comp -4.5% YTD
  • S&P 500 -7.8% YTD
  • DJIA -9.7% YTD
  • Russell 2000 -10.2% YTD

HeffX-LTN’s overall technical outlook for the major US stock market is Bearish in here.

Looking ahead: Investors will receive the following data Friday: Personal Income and Spending reports for January, PCE Prices for January, the revised University of Michigan Index of Consumer Sentiment for February, and the Advance reports for International Trade in Goods, Retail Inventories, and Wholesale Inventories

Stay tuned…

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