Institutional buying floods markets while GDP outlook falls.
US equity markets continue to press higher to close above the 2800 level on the S&P 500 into Friday’s close. There was a lot of sideways movement throughout the week as corporate earnings continue. Trump was in Vietnam this week in hopes of reaching an agreement with North Korea and Un, but the meeting was cut short as an agreement was not reached.
There was further Brexit news that shook up the British pound, Theresa May declares that she will have to delay the March 29th deadline. The pound remained strong due to “no deal” Brexit uncertainty dissipated. Lighthizer, Powell and Cohen all testified this week and the Fed chair continued his dovish tone.
The equity rally was aided by good economic data out of both China and Europe. Trade talks continued as the deadline was pressed back but with great optimism that a deal would be reached.
Here is a look of last week’s stock market on a daily basis (red vertical lines split days).
Stock Market and Sector Overview
Here is a break down of the weekly performance in various stock market sectors (top chart):
- Energy stocks up 1.03%
- Technology up 1.02%
- Financials up 0.87%
- Retail up 2.24%
- Utilities up 0.11%
Overview of key markets last week (bottom chart):
- Crude oil down 2.89%
- S&P500 up 0.11%
- Silver was down 4.59%
- Gold down 2.93%
- US dollar up 0.01%
Smart money floods into the market…finally.
This whole rally, for a whole three months, twelve weeks big money was leaving equities, outflows of over $50 billion. However markets continued to rise, it was the biggest outflow period to start a year since 2016. This outflow streak ended as equities witnessed a $9 billion inflow. The battle of the bears was over they seemed to have submitted to the buy stock run (short covering) and stock buy backs that were moving markets higher. Was this in part due to progressing trade talks between China and the US? Or do institutions want to flood money in to hit that 3000 mark on the S&P 500?
US equity inflow was largely in large cap stocks, which was reflected by the $4.6 billion inflows. Sector by sector, consumer lead the way with $1.7 billion of inflows, followed by tech $1.3 billion, healthcare $0.7 billion, real estate $0.4 billion and utilities $0.2 billion. Financials experienced outflows of $0.5 billion. Interesting that consumers had the most inflows, while tech was near the top meaning that inflows were into growth positions rather than value.
Although US inflow finally kicked off, global inflows were anemic in comparison, a net $0.3 billion. Emerging market inflows rose, but not so much out of China, which was reflected in Asian markets.
To add to this the dovish fed has propelled a sharp inflow in credit, from a near $70 billion outflow late in 2018 to a $43 billion inflow in 2019. All of this while trade talks reportedly progress according to Kudlow and not so much Lighthizer (trade hawk).
March 1st was the supposed deadline for the deal but it has been pushed back which could mean that both nations are fighting for a deal to benefit both sides and bring stability to global markets. Or they could just be butting heads trying to get the best possible deal. Either way, the deadline came and went. No deal as of yet.
Both parties are trying to reduce tariffs to best benefit each other. According to Kudlow, trade talks are going swimmingly, Lighthizer has a different opinion. Lighthizer explicitly expressed that the trade agreement was very uncertain and even once something was signed more uncertainty would loom. This had a lot to do with a recent late-week rally in equities, along with an increase in the 4th quarter GDP. Traders and investors a like need to keep an eye on trade development and equity inflows/outflows in the coming weeks.
Weekly Economic Calendar
A lot of high impact events coming in at the end of the week. The next week starts off a little slower, Fed chair Powell closes off the week presenting us with ample intraday opportunity.
Sunday, Australia building approvals hit overnight.
Monday, Australia’s RBA rate statement goes on the wire. Bringing movement to the Aussie dollar.
Tuesday, More news out of Australia as GDP number come out and RBA Governor Lowe goes on the wire.
Wednesday, a lot of news out of Canada that will impact the Dollar. Trade balance, BOC rate statement and the overnight rate. Retail sales come out of Australia.
Thursday, news out of Europe. Main refinancing rate pre market and the ECB press conference.
Friday, a plethora of news out of Canada and the US pre market. Employement numbers out of neighboring nations and Fed Chair Powell goes on the wire in the morning.
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