Week Ahead: Are Investors Losing Faith In The Equities Market?

Though US stocks fell on Friday—with the Dow, S&P 500, NASDAQ Composite and Russell 2000 all finishing lower—on a weekly basis the major indices climbed, for a second week. Fundamentally, on Friday technology shares were a drag on markets after earnings disappointed. Technically, it was the second week in which investors were not willing to commit over the course of the weekend. Could this be a sign investors are losing faith in the equities market?

The S&P 500 Index dropped 0.92 percent on Friday, with most sectors in the red. Consumer Staples outperformed (+0.58 percent), while Communication Services (-2.05 percent) and Technology (-1.73 percent) underperformed. On a weekly basis, the index climbed 2.13 percent, with Health Care gaining (+4.13 percent) boosted by diminishing odds of Republicans successfully repealing healthcare after losing the House to Democrats along with some states passing ballot initiatives to expand Medicaid under the Affordable Care Act.

The Dow Jones outperformed, with a one day setback of "only" 0.77 percent. The mega cap index gained 2.84 percent for the week.

The NASDAQ Composite fell 1.65 percent on Friday though it rose 0.68 percent for the week. Chipmaker Skyworks Solutions (NASDAQ:SWKS) plunged after results signaled a slowdown in smartphone demand.

The Russell 2000 underperformed Friday, falling 1.77 percent. Technically, it's the only major US index that is under the uptrend line since the previous correction early 2016. It is also the only one beneath the200 DMA and a Death Cross is about to take place, with the 50 DMA crossing below the 200 DMA, a signal considered bearish by trend following systems.

While the VIX climbed on Thursday and Friday, volatility fell for the second straight week to the lowest levels in about a month. Still, it remains above its full 2017 and most of 2018 levels.

Treasury yields edged lower after the Federal Reserve reiterated on Thursday that it continues to plan for “further gradual” rate increases. Technically the 10-year yield found resistance at the previous peak, 3.250, hit a month ago. Should it continue to fall below 3.050, it would complete a double top.

The US dollar is a quarter of a percent away from beating the October 31 peak and again reaching the highest level since mid-2017. The pound weakened amid ongoing speculation over a potential Brexit deal. Emerging-market stocks and currencies slid.

West Texas Intermediate crude capped a 10th straight loss, slipping to the lowest since March. Technically, the 50 DMA crossed below the 100 DMA, showing recent price weakness.

Investors are keenly focused on any signs the economic cycle is peaking. While lower oil prices seem mostly driven by a surge in supply, not a drop in demand, there are more worrisome signs coming out of China. Data from the world's second largest economy showed a softer PPI, weak automotive sales and a disappointing outlook from Ctrip.Com International (NASDAQ:CTRP), all of which helped reignite lingering concerns about the health of the Chinese economy.

Asian financial shares performed particularly poorly late last week, following news that Beijing plans to set quotas for banks to pump credit into private companies. The offshore yuan held relatively steady, falling a bit at the end of the week, though there was little sign of an end to the U.S.-China trade war in the wake of the midterm elections.

Overall, this past week the market continued its rebound from the October pullback, on positive corporate earnings releases, the culmination of midterm elections, and a positive assessment of the economy from the Federal Reserve, all of which provided some renewed optimism. Recent market swings are reflecting a greater preponderance of headwinds and tailwinds in the investment environment, might also be obscuring the underlying factors that are likely to guide the market over time.

So are investors losing faith in the market? That's hard to say at this juncture, but it is particularly glaring that even after two up-weeks, on the final day of trading both this past week and the week previous, markets finished lower, indicating a lack of investor optimism.

Perhaps the third, upcoming week will provide the 'charm.' Should markets have a repeat performance again in the coming week—rising overall but closing on the final day of trade in the red—signs would be solidifying that there's shrinking faith in this aging bull.

Week Ahead

All times listed are EST

Monday

19:30: Australia – NAB Business Confidence (October): index to rise to 12 from 6

Tuesday

4:30: UK – Employment Data: claimant count to rise by 4,300 from 18,500 in October, while the unemployment rate holds at 4%, and average hourly earnings rises 3% in September.

5:00: Germany – ZEW (November): economic sentiment to rise to -24.2 from -24.7.

18:30: Australia – Westpac Consumer Confidence (November): index to rise to 103 from 101.

18:50: Japan – GDP (Q3, preliminary): forecast to be -0.3% QoQ from 0.7%.

Wednesday

2:00: Germany – GDP (Q3, flash): QoQ to fall to -0.3% from 0.5%, and YoY to be 1.2% from 2.3%.

4:30: UK – CPI (October): prices to rise 0.2% MoM from 0.1% and remain steady at 2.4% YoY. Core CPI to remain flat at 1.9% YoY.

5:00: Eurozone – GDP (Q3, 2nd estimate): QoQ growth to remain at 0.2%.

8:30: US – CPI (October): prices to rise 0.3% MoM and 2.5% YoY, from 0.1% and 2.3% respectively. Core CPI to rise 0.2% MoM from 0.1%.

19:30: Australia – Employment Data (October): unemployment rate to rise to 5.1% from 5%.

Thursday

4:30: UK – Retail Sales (October): sales to rise 0.1% MoM and rise 2.8% YoY from -0.8% and 3% respectively.

8:30: US – Empire State Manufacturing (November), Retail Sales (October): index to fall to 19.3 from 21.1. Sales to rise 0.4% MoM from 0.1%.

11:00: US – EIA crude inventories (w/e 9 November): delayed by a day due to Veterans Day, stockpiles to rise by 5.783 million barrels from an increase of 5.7 million a week earlier.

Friday

5:00: Eurozone – CPI (October): prices to rise 0.2% MoM from 0.5%, and flat at 2.2% YoY . Core CPI to remain flat at 1.1% YoY.