Market Update: Fri, Feb 8, 2019 | LPL Financial Research

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Daily Insights

Sentiment, S&P 500 turn south on trade headlines. A strong start to the week was abruptly halted yesterday after President Trump indicated he does not plan to meet Chinese president Xi Jinping ahead of the March 1 deadline. Though the two are still expected to meet at some point, the comments suggested a deal may be farther out than what was previously thought. Adding to investor angst was a resurfacing of U.S.-E.U. trade tensions when a U.S. diplomat suggested “the good faith and understanding that existed on July 25 has not been followed through on,” referring to the day the two sides reached a deal. Stocks subsequently sold off, keeping the S&P 500 Index below its 200-day moving average (details below) on its way to posting its largest decline in two weeks.

S&P 500 fails at first attempt to cross 200-day moving average. With U.S. equities lower in early trading, it looks as though investors will have to wait another week for the benchmark S&P 500 to recapture above its 200-day moving average. The index ended Tuesday just below the closely watched trendline (currently around 2740), before slipping each of the past two days. As we noted in our most recent Weekly Market Commentary, after the best January since 1987 and a more than 16% bounce from the lows, a consolidation of these gains is not only healthy, but probably necessary before stocks ultimately move higher. The most logical level of support we’ll be watching is the 2600-2650 range, while if we do get above the 200-day moving average, the next important resistance point would be 2817.

Bullard warns on “restrictive” rates. St. Louis Federal Reserve (Fed) President James Bullard said in a speech yesterday that the Fed must “tread carefully” in future policy changes, and noted that he views inflation-adjusted rates as “a little bit restrictive” at this point. Bullard, a Fed voting member this year, has been especially dovish in the past, so his message isn’t unusual. However, Fed policymakers’ commentary has been especially scrutinized recently after the Fed committed to patience in deciding on future rate adjustments at its January meeting. Core personal consumption expenditures, the Fed’s preferred inflation gauge, has remained around the Fed’s target for several months, but financial markets have increasingly priced in lower inflation going forward. We expect to see one or two more interest rate hikes this economic cycle, but not necessarily in 2019, if inflationary pressures deviate significantly from the Fed’s 2% growth target.

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