Stocks Halt on the Verge of Breakout as China Waiting Game Begins

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Stocks halted on the verge of a breakout last week as investors wait for more news about a potential trade deal with China.

The S&P 500 fell 0.5 percent between Friday, September 13, and Friday, September 20. It was the first negative week in the last four and came as the the index paused near its late-July record high.

Almost every economic report was positive. Housing starts, existing home sales and homebuilder confidence blitzed ahead of expectations. Jobless claims remained super low. Industrial production beat forecasts, despite widespread talk of factories leading us into recession.

The Federal Reserve also cut interest rates for the second time since July. The move was hardly a surprise because almost every other central bank on the planet has done the same. The big news was the Fed’s overall optimism toward the U.S. economy and the sharp division between policymakers.

But, that’s almost inevitable with Chinese trade still a huge question.

What Will October Bring?

President Trump’s trade war against the Asian giant is the market’s top concern now. If a deal is reached to end the uncertainty, investors and business leaders will probably breathe a sigh of relief. Orders and sentiment could surge, and the S&P 500 may have all the fuel it needs to put 3,000 in the rear-view mirror.

S&P 500 with 50-day moving average, July peak over 3,000 and potential support level near 2940.
S&P 500 with 50-day moving average, July peak over 3,000 and potential support level near 2,940.

On the other hand, things could play out just the opposite if Beijing and the White House remain at loggerheads. Fence sitters could veer toward caution and the market could sink deeper into a world of super-low interest rates.

That’s why everyone’s waiting for more information about a planned high-level meeting in Washington next month. Both sides have recently given signs an agreement is coming, pausing tariffs and avoiding new provocations.

Remember, October 1 is a big Chinese national holiday. Some analysts have said no deal will be announced until after the ceremonies.

Solar Shines But Roku Crashes

Solar energy led gains last week as 2019’s best-performing industry group continues to shine. Enphase Energy (ENPH) and SunPower (SPWR) rallied the most.

Aside from that, most sector performance was uneventful. The previous week’s big gainers like retailers, banks and industrial metals pulled back. Meanwhile laggards including real-estate and healthcare advanced.

An interesting drama emerged in the streaming-video space on Wednesday after Comcast (CMCSA) introduced a new set-top box that will compete directly with Roku (ROKU). Pivotal Research added insult to injury two days later, predicting that devices like ROKU’s will become worthless. Apple (AAPL) is rolling out its own TV+ service as well.

Roku (ROKU) chart, showing break below its 50-day moving average.
Roku (ROKU) chart, showing break below its 50-day moving average.

All told, ROKU had its worst week ever, with more than one quarter of its value erased.

FedEx (FDX) was the biggest decliner in the S&P 500 last week, cratering 15 percent on a poor quarterly report. While management tried to blame the trade war, analysts stressed margin pressures as wages rise and executives struggle to digest the TNT Express acquisition.

Retailers Gap (GPS) and Macy’s (M) followed with drops of 11 percent and 10 percent, respectively.

Crude oil (@CL) surged last week after drone attacks on Saudi production, however it gave back half its gain. That lifted several energy stocks including Apache (APA), ConocoPhillips (COP) and Cimarex (XEC) by about 6 percent.

Drug maker Incyte (INCY) edged ahead of them fractionally to end the week as the index’s top gainer.

Few Catalysts This Week

This week features some interesting economic reports, but they may not have much impact with everyone waiting on China.

  • Tomorrow brings consumer confidence and Nike (NKE) results after the closing bell.
  • Wednesday’s items include new-home sales and crude-oil inventories.
  • Initial jobless claims and pending home sales follow on Thursday. Micron Technology (MU) reports earnings in the afternoon.
  • The week concludes with durable-goods orders and personal incomes and spending on Friday morning.
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