Market Watch for March 16, 2018

Global Portfolio Advisory Group

March 16, 2018

Big Picture

Economic data, geopolitical developments in focus

It was a busy week filled with political drama, trade tensions and a range of market-moving releases from some of the world’s biggest economies. In the U.S., uncertainty continued to linger regarding the impact of new trade tariffs with traders also weighing personnel changes in the Trump administration. Both developments come amid rising geopolitical tension with Russia after the U.S. imposed sanctions on Moscow stemming from last year’s presidential election meddling.

Turning to economic news, U.S. consumer prices came in at a tepid 0.2% in February decelerating from January. The month-over-month fallback in consumer prices comes on the heels of last Friday’s U.S. jobs report which showed wage growth slowing. Both releases have tempered outlooks for an uptick in inflation which suggests the U.S. Federal Reserve may stick to its plan to raise rates three times – and not more – this year. U.S. retail sales – a key driver of GDP growth – also suggests a steady-as-she-goes approach to rate rises as Americans reduced retail spending for the third consecutive month in February. In China, industrial production numbers and retail sales numbers came in better-than-expected in January and February from a year earlier pointing to a moderately accelerating economy as factory activity and consumer spending moved higher. On the trade front, U.S. allies Japan and Europe – are seeking ways to avoid the recently imposed U.S. metals tariffs while China signaled its intent to retaliate. Turning to Europe, the U.K. and its allies blamed Russia for the poisoning of a former double agent further isolating Moscow on the world stage. Looking ahead, all eyes will be on the U.S. Federal Reserve next week as it kicks off its two-day policy meeting Tuesday.



U.S. stocks fall, TSX rises

North American stock benchmarks started the week strong but faded mid-way and through to the close Thursday. For the four days covered in this report, the Dow fell 438 pts. to close at 24,873, the S&P 500 gave back 39 pts. to end at 2,747 and the Nasdaq fell 79 pts. to settle at 7,481. In Canada, the TSX gained 93 pts. to end Thursday’s session at 15,670.



This comment has been adapted from a Scotiabank GBM Portfolio Strategy Group comment published on 12 Mar/2018, titled Technical Trends: Cyclical Proxies Still Exhibiting Bullish Price Action.

Although volatility has surged since early February 2018 amid trade and U.S. Federal Reserve policy uncertainties, we are still noticing supportive price action in economic-sensitive sectors, such as broker-dealers, semiconductors, and U.S. small caps, which suggests risk appetite is still alive.  Broker-dealer stocks have recovered handily from losses suffered in February 2018 and, by some measures, have exceeded their late January 2018 highs. The PHLX Semiconductor Index (SOX) reached a new intraday high on March 13, 2018 (1,465). The SOX is trending higher and trading above well-structured moving averages (i.e., both the 50-day and 200-day moving average lines are rising). The positive price action in the semiconductor space, which is often seen as a good barometer of economic activity, also bodes well for the rest of the market.  U.S. small cap stocks are also bouncing back. The Russell 2000 index recovered strongly in early March, with the March 12, 2018, closing price above its late February high and above its 50-day line. Unless the index closes below the 1,500 support area, the odds continue to point to a re-testing of the January 23, 2018, high (1,611).


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