For a while on Tuesday, market participants forgot recent worries about the inverted yield curve and slowing economic growth. There was a strong open and a good finish to the day, but during much of the session the action was lackluster and stocks trended downward.
Worries about growth are reflected in bonds, which are rallying this morning. The iShares Barclays 20+ Year Treasury Bond Fund (TLT) is hitting its highest point since January 2018. When money is looking for safety in bonds, it is usually due to concerns that the economy may hold some negative surprises.
This narrative about slowing economic growth has gained some traction lately but it still hasn't been fully embraced. The action Tuesday seemed to indicate that the worries were easing, but they are still out there. The central banks are poised to deal quickly with any overt signs of weakness, and talk about an interest rate cut is going to build if the economic growth worries persist.
In the shorter term, the market may find some support in the form of headlines about trade. Negotiations restart on Thursday and there is very likely to be some reports about progress. Many market players will be skeptical of such news, but those headlines have repeatedly produced some quick spikes -- and it is dangerous to be too bearish with that potential out there.
Also on Thursday, the much anticipated Lyft IPO is scheduled to price after the close. This will create some excitement, although it will also suck up some capital from other areas of the market. Strong trading in Lyft could help the market mood.
Technically, the indices remain healthy. The S&P 500 is close to flat for the month of March, but support has been very solid and the 50-day simple moving average is close to moving back over the 200-day moving average. These moving average crossovers are generally viewed as positive. When the 50-day crossed under the 200-day in December 2018 there was a sharp drop in the indices that eventually led to the December 24 low.
The most-important index to watch right now is the Russell 2000 ETF (IWM) . It tends to attract more speculative buyers and is a good indicator of risk tolerance. When market players start to worry, the first stocks they tend to dump are the small-caps.
Small-caps outperformed Tuesday, which was a good sign. But if the IWM takes out recent lows, it is going to trigger some sell stops.
The chart of the Financial Select Sector SPDR ETF (XLF) is also problematic. The inverted yield curve is wreaking havoc on banks, and if recent lows are undercut that is going to cause some issues.
We have a shaky start Wednesday morning and "growth concerns" grab the headlines once again. I'll be managing positions closely and will be very stingy about giving back gains. Stay vigilant, protect capital and be very selective with new buys.