It was a decent week for the stock market. Why? It could be because President Donald Trump was out of the country and the dialogue shifted away from scandal to geopolitics. The stock market didn’t have a chance to get upset as everyone took a breather from the growth agenda being interrupted. But he’s back and the domestic problems have not gone away. Who knows what they’ll come up with next.
Those of you who’ve been following my work carefully know I’ve been very concerned about the stock market eventually waking up to the events of the day and not liking it very much. The problem was nobody knew when that would happen given the market has overlooked so much for so long.
The big story of last week appeared to Macy’s. They had a bad earnings report and gapped down. Here’s my question. They topped last November, why worry about it now? Normally, this is the kind of bad news that would create a wash out low. But how could we have a wash out low on bad news when the VIX is so close to record euphoria?
The U.S. dollar will finish the week ending May 12 higher across the board against major pairs. Despite the dollar rally losing steam as softer economic data was released the U.S. Federal Reserve kept the June rate hike on the table boosting the greenback on a monetary policy divergence basis. The central banks of New Zealand and England issued statements this week and made it clear that there are no rate changes coming soon, unlike the U.S. central bank.
The initial outcome on Sunday night had the YM gapping up but dropping lower immediately for the classic gap and fade. The ship steadied by Monday morning but it remained off the high. Elsewhere, the EUR/USD was a golden spiral 263 days off its high as of Friday’s close and the open on Sunday night was negligibly lower and by the morning drifting lower.
The euro/U.S. dollar currency pair gained 0.777% during the week. The single currency is trading at 1.0987 after a period that was high on political risk with the French presidential elections entering their final stretch. The televised debate between the two candidates was an entertaining affair but failed to change the odds by much.
The U.S. dollar is mixed against majors with gains against the New Zealand dollar, the Japanese yen, the Canadian dollar and the Aussie dollar but weaker against the euro and the British pound. Risk appetite in Europe returned after the restful of the first round of elections in France left Macron and LePen heading into the May 7 deciding second round. The Trump administration presented its tax reform plan and launched a more aggressive trade offensive against NAFTA but anxiety around the dollar surged with the first release of the U.S. GDP in the first quarter coming in below expectations at 0.7%.
Seriously, ever since Wednesday the S&P 500 has been drifting lower and the move to the recent high has a calculation to it. From the low on the 13th we can make a case for a first leg of 24 points and a bigger leg of 63 points. You don’t even need the calculator to see it’s a 2.62 ratio which means we either have a high or a 3rd wave high. It’s also back at the top of the channel lines. Since Wednesday they put in a bear belt on Friday.
The March jobs number was weak at 98,000, but mining added 4,000, construction 49,000 and manufacturing added 30,000. There is the good and the bad, but let’s be clear, anything under six figures is nothing to write home about. Is this President Donald Trump’s fault? I don’t think so, but if he is going to take a lot of the credit when the report is good at this early stage of the game, he is going to have to accept some of the blame when it’s not good. That’s how this game works.