Stocks Stumble on Trade Talk, Slower Growth and Technicals

The downward drift by stocks earlier this week accelerated on Thursday as lowered growth forecasts for Europe added to angst over U. S.-China trade talks and technical selling at major resistance levels.

Market Averages turned lower to start the week. after hitting reaction highs on the first day of the month. The reversal from the Monday morning rally has raised the caution flag for buyers after nearly a non-stop rally had pushed major Market Averages higher during the first two months of the year.

Headlines the last 2 days have been an additional headwind for investors, already leery that the rally was ahead of itself.

On Wednesday, New York Federal Reserve President John Williams highlighted the “new normal” of slower economic growth for the U.S. economy during comments at the New York Economic Club.

On the trade front, enthusiasm for the U.S.-China trade talks has waned a bit, over concern that markets had built in to rosy a final outcome following President Trump’s rebuke at the summit with North Korea the prior week.

While the market reaction has been nowhere near the relentless rout experienced during the downward price action in December, it’s still the most meaningful pullback so far this year.

Here’s where we stand 5 trading days into the month:

The Dow Jones Industrial Average (^DJI) at 25,473 has declined -1.7% during the five trading days in March, and is +9.2% YTD. The DJIA remains +1.4% above its 200 day moving average of 25,126, but posted its lowest close since February 14.

The S&P 500 at 2748.93 has started the month of March with a -1.3% decline, while still sporting a YTD gain of +9.6%. Thursday, the S&P 500 (^SPX) settled less than 2 points below its 200 day moving average of 2750.81. Like the DJIA, this was the lowest close for the S&P 500 since February 14.

The NASDAQ Composite (^IXIC) at 7421.46 is lower by -1.5% five days into the month. The NASDAQ still has a gain of +12% YTD, although it did close just less than 1% below its 200 day moving average of 7480.

Very similar to the DJIA and the S&P 500, today was the lowest close for the NASDAQ composite since February 12.

The Russell 2000 (^RUT) has clearly been the high beta Index since posting it’s all time high on August 31 of last year. While The Russell at 1523.60 has declined -3.3% the first five trading days in March, it remains +13% YTD.

Where the Russell just barely eked out a couple closes above its 200 day moving average during the recent market highs, it’s now at a -4% deficit to that benchmark of 1586.20.

We’d really like to see the Russell 2000 hold the 1500 level on any further weakness. As a point of reference, the 50 day moving average lies just below that at 1483.

My sense is that this pullback will stabilize by mid-month as investors look to log a solid first quarter (Q1) as well as continue to position themselves for the remainder of 2019.

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