The market has grown increasingly nervous over the past couple weeks as it has struggled with the narrative that the global economy is slowing. Strength in bonds and inversion of the yield curve has helped to propel those concerns but the market has been able to avoid any real technical damage so far. The uptrend has come under pressure but the bears have not been able to close the deal.
The market has been able to avoid more aggressive selling for a few reasons. First is that the Fed is prepared to move quickly if there are signs of further economic deterioration. Jerome Powell is already as dovish as he can be without cutting rates. The market is now anticipating two cuts in the next year and any significant drop in the market is going to cause speculation that a cut will happen sooner rather than later. There are five Fed members scheduled to speak today and the market will be looking for comfort from their comments.
Hope for a China trade deal is always helping to keep a bit under the market. There are concerns that President Trump has been toughening his stance recently but any signs of progress will receive a positive reaction. The negotiations resume today and the potential for weekend news is high.
The highly anticipated Lyft IPO will price tonight which may help the tone of the action as well. The anticipated price range has been increased again to $70-$72 for 30.8 million shares, which makes this the biggest IPO of the year. While this will suck up a huge amount of capital, a positive reaction will help the mood of the market. (Read my column on how to trade hot IPOs here.)
Another issue that is in play right now is that the first quarter of 2019 ends this weekend and there are higher than usual allocation moves being made to adjust for the strength in bonds. There is always the typical end of the quarter window dressing and we should see some movement on that today and tomorrow.
The Brexit drama is ongoing but the market doesn't seem particularly concerned about that. Fourth quarter GDP final numbers are due to be released and weekly unemployment which may cause a brief flutter in the action.
Overall the market has been struggling to make progress recently and as the worries about global growth continue. What we need to watch for is an inclination to sell into good news such as progress on China trade. If the market can't start generating better upside momentum on positive news, we will have some problems
My biggest concern right now is that individual stock-picking has become much more difficult lately. There are still few winners such as Amarin (AMRN) but they are becoming scarce. If the market continues to become more index driven that is going to be a problem.
We have a very mild start this morning with market players becoming increasingly uncertain.
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