Four Keys to a Market Bottom Updated

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What’s in Today’s Report:

  • Four Keys to a Market Bottom – More Progress But Not There Yet
  • Weekly Market Preview
  • Weekly Economic Cheat Sheet

Futures are marginally lower following a quiet weekend as markets digest Friday’s big rally.

Economic data was mixed overnight as Japanese Composite PMI and German Manufacturers’ Orders missed estimates.  However, German Retail Sales (1.4% vs. (E) 0.4%) and EU Retail Sales (0.6% vs. (E) 0.2%) beat expectations.   So, the data reflects a still generally muddled global economic outlook.

Regarding trade, the next round of U.S./China trade talks began in Beijing but there were no notable headlines, although none were expected this early so the silence isn’t a negative at this point.

Today focus will be on economic data as we get the ISM Non-Manufacturing PMI (E: 58.4).  Despite Friday’s strong jobs report there are growing worries about the U.S. economy so a good ISM Non-Manufacturing (or service sector) PMI should help stocks keep most of Friday’s gains.  Finally, we also have one Fed speaker today, Bostic at 12:40 p.m. ET, but he shouldn’t move markets.

How Bad Can It Get? Valuation Worst Case Scenario

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What’s in Today’s Report:

  • How Bad Can It Get?  Valuation Worst Case Scenario

Futures are sharply higher after China took further steps to support the economy while economic data was mixed.

China announced a 1% cut to bank reserve requirements and pledged to do more to support the economy.  This announcement is the main reason stocks are bouncing back this morning.

Global composite PMIs were mixed as China beat estimates (52.2 vs. (E) 51.9) while the Euro Zone Composite PMI missed expectations (51.1 vs. (E) 51.3).

Today focus will be on two big events.  First, the jobs report.  Expectations are for 180K jobs adds, a 3.7% unemployment rate and a 3.0% annual wage increase.  The best case number is a mild miss on all three metrics, so around 150kish jobs, 3.8% unemployment (or higher) and under 3.0% wages.  The worst case scenario (a stagflation number) is a miss on jobs but firm unemployment and wages.  If that happens, it’ll likely be another ugly day.

The other major event today is the  Powell speech at 10:15 a.m. ET (he’ll be joined by Yellen and Bernanke).  The key here is Powell changing his rhetoric to look more flexible on 1) rate increases and 2) balance sheet reduction.  If he does that, especially with regards to the balance sheet, then stocks can extend this early rally.

Sevens Report’s Tyler Richey quoted in MarketWatch on January 3, 2019

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Sevens Report’s Tyler Richey quoted in MarketWatch on January 3, 2019. Read the full article here.

Jobs Report Preview

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What’s in Today’s Report:

  • Jobs Report Preview
  • Is the AAPL Decline an Opportunity for Value Stocks?

Futures are down more than 1% as AAPL sharply cut Q4 revenue guidance.

AAPL cut Q4 revenue guidance to $84 bln from the previous $89-$93 bln range, citing slowing Chinese demand as the main negative influence.

Economically UK Construction PMI and Euro Zone Money supply both slightly missed expectations.

The entire tech sector will be in focus today to see how well it can hold up in the face of the AAPL news, which wasn’t a shock as analysts and suppliers have been cutting IPhone numbers for months.  If stocks can set the lows early in the day and rally back, that would be an anecdotal sign near term selling pressure may be exhausted.

Away from AAPL, we get a lot of economic data today including (in order of importance): ISM Manufacturing Index (E: 57.9), ADP Employment Report (E: 175K), Jobless Claims (E: 217K) and Motor Vehicle Sales (E: 17.3M).  Data today could be important because if the data is firm, it should decrease the AAPL fallout.  However, if the data is weak, then it’s going to be another ugly day as the news will reinforce worries about corporate earnings and economic growth.

More Growth Fears

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What’s in Today’s Report:

  • The Aussie-Yen Points to Further Growth Fears

S&P futures are tracking international shares lower to start the year this morning as another set of soft economic data stoked fears of slowing global growth.

The Chinese Caixin Manufacturing PMI Index fell 0.5% to 49.7 in December suggesting the world’s second largest economy is slipping into contraction.

Meanwhile, the Eurozone PMI Manufacturing Index met expectations but dipped to a near two year low of 51.4.

In the U.S. today, there is one economic report to watch: PMI Manufacturing Index (E: 53.9) and there are no Fed officials scheduled to speak.

2019 Market Outlook

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What’s in Today’s Report:

  • 2019 Market Outlook
  • Weekly Market Preview
  • Weekly Economic Cheat Sheet (There are a lot of big reports this week)

Futures are higher on the final trading day of 2018 as a positive tweet on U.S./China trade is offsetting more weak Chinese economic data.

President Trump tweeted over the weekend that U.S./China trade talks were making “big progress,” raising expectations for a deal in early 2019.

Chinese economic data missed estimates as the December Manufacturing PMI dropped to 49.4 vs. (E) 50.0, signaling outright contraction. It was the lowest reading since 2016.

There are no notable economic reports or Fed speakers today so I’d expect end of year positioning to dominate trading.

Sevens Report’s Tom Essaye quoted in CNBC on December 26, 2018

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Sevens Report’s Tom Essaye quoted in CNBC on December 26, 2018. Click here to read the entire article.

Valuation Update

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What’s in Today’s Report:

  • Valuation Update and a New “Fair Value” Trading Range

Futures are extending the late Thursday gains and are modestly higher thanks to momentum.

Economically, Japanese data disappointed as the Unemployment Rate (2.5% vs. (E ) 2.4%) and Retail Sales (1.4% vs. (E) 2.2%) missed expectations.

Today investors will see if the year-end bounce can continue.  There are a few economic reports including International Trade in Goods (E: -$75.7B), Chicago PMI (E: 62.4) and Pending Home Sales Index (E: 1.5%) but none of those should move markets materially.

Was that the Bottom? (Technical Update)

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What’s in Today’s Report:

  • Technical Update: Was that the Bottom?

Futures are lower and giving back about 1/3 of yesterday’s massive rally on digestion and potentially negative U.S./China headlines.  There was no notable economic data overnight.

The Trump administration is considering an executive order banning U.S. companies from using Huawei and ZTE products (both Chinese firms).  This represents a potential escalation in ongoing U.S,/China tech/trade conflict, although so far China has viewed the trade and tech issues separately, and that needs to continue otherwise this market will face additional headwinds.

Today markets will try and digest yesterday’s massive rally with the best case scenario being a continued rally that sees the Dow and S&P 500 close above near resistance levels.  Economically, we do get multiple reports including  Jobless Claims (E: 217K), FHFA House Price Index (E: 0.2%), New Home Sales (E: 560K) and Consumer Confidence (E: 134.0) although none of those should move markets materially.

More Unforced Errors

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What’s in Today’s Edition:

  • More Unforced Errors

Stock futures are bouncing modestly this morning after the worst Christmas Eve selloff in history took place on Monday which saw all of the major indexes fall well over 2%.

News flows were mostly quiet over the last 48 hours however President Trump did make supportive comments regarding Secretary Mnuchin after he spooked markets Monday and continued to blame the Fed for the recent selloff.

There were no economic reports overnight.

There is not a lot on the calendar today as there are no Fed officials scheduled to speak and there is just one economic report to watch: S&P Corelogic Case-Shiller HPI (E: 0.4%).

As a result, investor focus will remain on U.S. politics and global growth as they have been the main reasons for the most recent stock declines.