Week Ahead: Gold, Treasurys Rise; Investors Signaling End To Equity Risk-On?

The U.S. equity bull market celebrated its tenth anniversary last Saturday, capping that milestone off with a week of gains. Still, we're not convinced there remain any new tricks up this old bull's sleeve. Adding to our concerns: both Treasurys and gold—safe haven assets—are climbing. Could these indicators be signaling that investors are getting ready to put this geriatric bull out to pasture?

We can't know of course, but if so, it's being ushered out with a bang. Ahead of the weekend, U.S. equities tracked global stocks higher and any losses from the previous week were wiped out. On Friday, Asian stocks jumped and European shares followed, spurred by China’s commitment to continued stimulus, amid speculation major central banks will not shift to tightening policies any time soon.

U.S. investors decided to commit to positions over the weekend after the Chinese government said it would cut value-added taxes, reinforcing expectations for an eventual pick-up in the world’s second largest economy. Markets were also primed to assume risk after the world’s largest economy showed signs of modest inflation. The UK's vote on Thursday to extend the Brexit deadline added to the sense of respite from market headwinds, even if just momentarily.

Will China’s stimulus have enough oomph to power the global economy? We're doubtful. The last time China’s growth kick-started economic expansion worldwide was after the 2008 Great Recession. But at that time China was already in growth mode. Now, it’s enduring a slowdown. As such, we’re not counting on China to pull up the rest of the world when it’s barely holding itself in check.

S&P Erases Last Week's Rout, NASDAQ Outperforms

The S&P 500 gained 0.5% Friday in a mixed session. Technology shares (+0.88%) offset some of the selloff in the Real Estate (-0.98%) and Industrials (-0.92%) sectors. For the week, the benchmark index notched a 2.89% jump, erasing last week’s rout as it experienced its best week since November. All sectors were in the green except for Industrials (-0.38%) which underperformed for the week, as well as on Friday. Technology took a commanding lead for the week (+4.56%).

This was the tenth week of gains out of twelve since Christmas. Technically, it was the highest weekly high and close since the late-December bottom, after last week’s close bounced off the 50-week MA. The S&P 500 has recovered 16.79% since the Christmas eve bottom.

The Dow Jones Industrial Average added 0.54% on Friday and 1.56% for the week. Due to the weakness in Boeing (NYSE:BA) shares after last Sunday's Ethiopia Airlines crash, the 30-component index was the weekly underperformer. However, the mega cap index is up 15.15% since the pre-Christmas rout. Technically, the 50 DMA crossed above the 100 DMA and is nearing the 200 DMA.

The tech-heavy NASDAQ Composite climbed 0.76%, outperforming, after semiconductor supplier Broadcom (NASDAQ:AVGO) met its guidance, a result of its strength in markets other than China, despite a steep decline in wireless sales, responsible for a double-digit semiconductor revenue loss. The confident outlook was an oasis for investors in the sector who've been disappointed by many corporate peers since Q4 2018. The stock was boosted 11.79% after the company reported on Thursday, and closed up 8.36% at $290.29 ahead of the weekend, a fresh record.

Technically, the stock is still under threat of a massive double bottom, in place since February 2016, with the weekly close only 2.5% higher than the previous record set during November 2017.

The NASDAQ's gains added 3.78% on the week, its eleventh weekly uptick out of twelve. It has been boosted 21.4% since the Dec. 24 bottom, extending the bull market it re-entered two weeks ago, after rebounding 20.05% since its 2018 bottom.

The Russell 2000 gained 0.13% on Friday, sealing a 2.08% rise for the week. The small cap index, much like the mega cap Dow, failed to recoup last week's losses. It is noteworthy that both the mega and small cap indices, on opposing ends of the spectrum of the trade war headwind, have been moving in tandem for the third consecutive week. Technically, the Russell bounced off the 100 WMA and is beneath the 50 WMA.

The 10-year Treasury yield closed below 2.6% on Friday, the second weekly decline for the sovereign note. It was also the second week yields were below a symmetrical triangle, bearish in the downturn since October, when yields reached above 3.26.

Why would investors be increasing their Treasury holdings during the strongest week for equities since November? Stocks and bonds are typically negatively correlated—stocks rise on growth optimism while Treasurys gain when expectations of a slowdown persist.

Technical analysis could provide some clues. Look where the symmetrical triangle on the chart above formed. It's right below the uptrend line, which mirrors the rising stock market that was lifted by U.S. President Donald Trump’s 2016 electoral victory. It's one reason we’re having such a hard time trusting this equity bull.

Yet another conflicting signal for the current risk-on market is gold's second weekly gain, matching the pattern for yields. Only the Japanese yen doesn't fit the pattern, but that’s understandable since that country’s central bank is pessimistic about its economy, even as Bank of Japan Governor Haruhiko Kuroda cautioned against pessimism, while keeping ultra-easy monetary policy on hold.

The dollar followed yields lower, but still found support at the 100 DMA, after bouncing off the 50 DMA on Wednesday, above the bottom of the greenback’s ascending channel since the beginning of the year, supported by the 200 DMA.

West Texas crude slipped as the International Energy Agency said OPEC nations have enough spare capacity to make up for any supply shock from the escalating crisis in Venezuela.

The pound strengthened at the end of a week, made volatile by three critical parliamentary votes on Brexit during the past week. Among those votes, Prime Minister Theresa May won the endorsement of British politicians to seek a Brexit delay.

The Week Ahead

All times listed are EDT

Monday

20:30: Australia – RBA Meeting Minutes: these will examine the decisions taken at the latest meeting.

Tuesday

UK Parliament to vote again on PM’s Brexit deal: despite losing twice, the UK PM may will try to get her deal through for a third time, in order to avoid a longer Brexit extension. At time of writing the deal still looks unlikely to pass.

5:30: UK – Employment Data: 150K jobs expected to have been created in December, while the January unemployment rate holds at 4%. Average hourly earnings to fall to 3.2% in January.

6:00: Germany – ZEW Index (March): economic sentiment to rise to -11 from -13.4.

19:50: Japan - BoJ Meeting Minutes

Wednesday

5:30: UK – CPI (February): inflation to rise 0.4% MoM and rise 1.8% YoY, while core CPI to remain steady at 1.9% YoY.

10:30: U.S. – EIA Crude Oil Inventories (w/e 15 March): stockpiles forecast to rise to 1.602M after falling during the previous week by 3.862 million barrels.

Technically, the price of oil provided an upside breakout to a pennant, signaling a resumption of the uptrend.

14:00: U.S. – FOMC Statement: no change in policy expected, but the current outlook will be worth noting. Will the Fed reiterate that its “patience” is for more data rather than a reference to its pace of rate hikes as a policy adjustment? We’re betting that the Fed will tilt toward ambiguity, to keep President Trump and the market off its back till the U.S. central bank will have to, in fact, adjust the market narrative.

21:30: Australia – Employment Data (February): unemployment rate to remain at 5%, while the number of workers rises by 14.5K.

Thursday

European Union Leaders Summit – EU leaders will vote on extension of Article 50

5:30: UK – Retail Sales (February): sales to fall to -0.4% from 1% MoM and declining to 3.3% from 4.2%YoY.

8:00: UK – BoE Meeting: the central bank will not dare change interest rates amid the country’s Brexit-upheavals, which is sure to dominate the discussions.

8:30: U.S. – Philadelphia Fed Manufacturing Index (March): expected to surge to 6.1 from -4.1.

11:00: Eurozone – Consumer Confidence (March): confidence to stabilize at -7.4.

19:30: Japan – CPI (February): CPI to be 0.3% YoY and core CPI to hold at 0 8% YoY.

20:30: Japan – Manufacturing PMI (March, flash): expected to rise to 49.2 from 48.9.

Friday

4:15 – 5:00 – French, German, Eurozone Manufacturing and Services PMI (March, flash): overall, activity in services is expected to weaken again but German manufacturing expected to improve.

8:30: Canada – CPI (February): inflation to rise 0.6% MoM and 1.5% YoY, and core CPI to hold at 1.5% YoY.

9:15: U.S. – Manufacturing and Services PMI (March, flash): services PMI to tick higher to 56.6 and manufacturing to edge up to 54.0 From 53.0.

10:00: U.S. – Existing Home Sales (February): sales seen to rise 2.2% from -1.2%