The S&P500 slipped 0.3% last week. Volume was light and volatility inched higher, but nowhere near any levels associated with fear, or much less panic. Diverging bearishly from the S&P, the HYG etf closed higher on the week, suggesting that many investors were more comfortable taking on risk.
In US macro news, there were only a couple of major positive surprises. The ISM manufacturing index beat expectations (but only slightly) and the initial jobless claims figure dropped back to multi-decade lows. Aside from these two beats, most everything else was a miss. PMI manufacturing disappointed. ISM services fell and missed expectations badly. Construction spending missed. PMI services missed. The payrolls result was a huge miss—only 98,000 new jobs were created instead of the 175,000 expected. To add insult to injury, average hourly earnings missed…..and so did the average workweek figure. The bottom line is that last week, US economic data took a turn for the worse.
Technical analysis is now suggesting that the S&P’s surge after the Trump election is once again stalling. Momentum indicators have turn down. MACD for example has diverged negatively for several weeks now on the daily charts; on the weekly charts, MACD is on the verge of diverging bearishly. Also, prices have now dropped back down to the 50 day moving average….and for the last few weeks, this moving average has held, despite being tested 4-5 times. So now any relatively minor movement downward will cause this moving average support level to fail; this would almost certainly lead to more selling…..perhaps at least down to the 200 day moving average.
So the US equity market is once again at a critical cross-road. While valuations remain at nosebleed levels, relative to 100+ years of history, the near-term catalysts for further upward price movement seem to be running out.