What's Certain: Uncertainty. S&P Fights for Gains Amid Strong Earnings

10/19/2018 4:47 pm EST

Focus: MARKETS

Nell Sloane

Principal, Capital Trading Group

Stocks were higher this morning, but bulls struggle to find stable footing and the market now finds itself teetering on the edge. Support held for the moment, with the SPX trading just above its 200-day moving average of 2768, writes Nell Sloane Friday.

To this point the 200-day has been a key support level. The recent uptick in volatility and surge in geopolitical headlines could put the algorithmic and quant models in high gear.

The great investors of the past made their fortunes buying weakness and selling strength. Many of today’s computer models are programmed to do just the opposite, i.e. continuing to buy into strength and continuing to sell into weakness. This is what makes the market extremely dangerous and can exponentially increase any and all moves. Certainly, the computers have the ability to stay irrational much longer than most of us can stay liquid!

Reuters: S&P 500 Index little changed Friday despite strong P&G earnings. S&P below its 200-DMA.

It feels like geopolitical headlines and worries are finally impacting the market. I’m hearing from some larger traders that U.S. earnings aren’t offering up the same protective mote as they have the past few quarters. It’s not so much the current quarterly earnings that are the problem, but the tone of several companies on their calls has shifted to a more negative forward-looking guidance, which is allowing the political fears to gain some momentum.

Thursday, there were basically three main catalysts... Starting with Italy’s debt situation and budget spending continues to spook the market.

In simpleton terms, Italy’s new government wants to try and grow themselves out of their current hole, i.e. increase spending in an effort to try and spark growth in their economy. Unfortunately, leaders in the European Union, who have loaned Italy money to this point, aren’t going for the spend your way out plan.

This uncertainty inside the European Union makes global investors nervous and drives more money towards safety.

The ongoing Saudi investigation involving the death of journalist Jamal Khashoggi is also adding further market uncertainty. U.S. stock bulls seemed to take another step backwards Thursday after hearing that Treasury Secretary Steven Mnuchin would not be participating in the high-profile investor conference scheduled in Saudi Arabia.

Again, not that it’s a huge deal in itself, but when added together with all the other balls in the air, there’s a lot more doubt that the bulls can continue to keep juggling.

Keep in mind, we also have ongoing uncertainty surrounding trade conflicts with the Chinese, Iranian sanctions going into play, rising U.S. interest rates and inflation, rising U.S. wages, a strong U.S. dollar, and a highly anticipated upcoming U.S. mid-term election. Many smart investors have made great returns the past couple of years and now seem content taking a little shelter as they spot a few more potential storm clouds overhead.

Today’s economic news will provide traders with the latest in Existing Home Sales, which probably won't show any significant bullish surprises. Next week we will be digesting the heavily anticipated first read on Q3 GDP along with updated New Home Sales data and weekly Jobless Claims.

Earnings reports today will be highlighted by Honeywell, Kansas City Southern, Proctor & Gamble, and Schlumberger. Earnings will be even heavier next week, with big names reporting...

Alphabet, Amazon, American Airlines, Anheuser-Busch, AT&T, Biogen, Boeing, Bristol-Myers, Caterpillar, Celgene, ConocoPhillips, Gilead, GrubHub, Edwards Life Science, Ford, reeport-McMoran, Haliburton, Harley Davidson, Hasbro, Intel, Kimberly-Clarke, Lockheed Martin, McDonalds, Merck, Microsoft, Morningstar, Owens Corning, Snap, Twitter, Union Pacific, UPS, Verizon and Visa to name a few. 

Cheers,

Nell

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