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Stocks Disappoint Last Week On Slowdown Abroad, Market Eyes Four IPOs This Week
Stocks were poised for a positive week last week, and then came Friday, with the major indexes down from -1.77% to as much as -3.52%.
Thursday's surge higher tempered Friday's losses in that much of Friday's drop just undid Thursday's rally. But it was enough to turn stocks lower for the week, dashing hopes for two back-to-back weekly gains.
Last week, the Fed left interest rates alone, and indicated that they would likely do so for the remainder of the year. They also said they would slow their balance sheet unwind in May and end it altogether in September. That's bullish for stocks.
But we also learned that the unofficial face-to-face meeting between President Trump and President Xi, which was expected to take place in March, then possibly in April, might now be pushed out to June. Both sides continue to cite progress in the negotiations. And U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steve Mnuchin will be traveling back to Beijing this week for more high-level talks. Another positive sign.
However, the delays are not ideal. And it's given traders an excuse to pull some profits, and allow the market to pull back a bit as it tries to consolidate the spectacular gains over the last three months.
I see nothing ominous in Friday's sell-off. And I'm expecting a lot more upside to go. We just happened to be down last week.
But there is a new boogeyman that folks will be focusing on -- and that's the yield curve inversion. People have been wringing their hands about this potentially happening for months (remember all of the ridiculous recession talk last year?), and yet the economy continued to strengthen while employment got even better and the market surged.
So the recent inversion (likely a temporary blip) will probably bring all of the crazy recession-talkers back out of the woodwork again. But you were right not to listen back then. And you'd be right to tune that nonsense out again this time. And for the record, if the inversion sticks (short-term inversions have spotty track records), it's a terrible timing indicator as it usually portends a recession two years later!
The best stats to watch are the economic reports and employment numbers. And for now, it shows no recession anytime soon.
But one thing we will be hearing more of is the slowdown in other countries, particularly China and Europe. So that does underscore the need to get the U.S.-China trade deal done asap!
On a separate note, Lyft will go public this week on Thursday, March 28th. Many are anxious to see how this goes as it will show investors' appetite for new/riskier stocks, as well as be a potential foreshadowing of what awaits Uber when they go public (expectedly) later in the year.
In the meantime, I would not be surprised to see some additional volatility in the market.
But I would be a buyer on the dips as I'm expecting new all-time highs to come in the near offing.
See you tomorrow,
Kevin Matras
Executive Vice President, Zacks Investment Research
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