Will Boeing ruin the breakout rally? This is an important moment for the markets. We are finally breaching the 2,800 level in the S&P 500 and have a shot at getting over 2,820. This is where five rallies have failed in the last six months, including ones in October, November, early December, late February and early March.
A break above 2,820 may drag in more investors.
One thing might be helping. Friday is a quadruple witching expiration, the quarterly expiration of index options and futures and individual stock options and futures. As Jeff Hirsch from the Stock Trader’s Almanac has noted there is slight upward bias in this week over history — Since 1983, the market has been up 24 times during the week when quadruple witching occured in the first quarter, and down 12.
The bad news: The week after this one tends to be a down week. Over the same time, the market has been up 10 times the week after first quarter quadruple witching but down 26.
The key is the growth outlook. We had good data on Wednesday (durable goods, producer prices,) and that may help bulls to argue that earnings may not turn negative for the first and second quarter.
But to keep the rally going, Alec Young, the managing director of Global Markets Research for FTSE Russell tells CNBC, “We need some more meat on the bones.” Investors want to believe the worst is over, but it’s still hard to believe that narrative, particularly with weak economic signals from China and Europe.
That’s why investors will be watching key Chinese economic data (retail sales, industrial production) overnight.
What traders need is better visibility on global growth. FactSet recently pointed out that companies that rely heavily on earnings outside the United States have lower earnings expectations than companies that have the majority of earnings inside the U.S. Analysts are forecasting first quarter earnings overall will be down 3.4 percent. But companies with more than half their sales coming domestically are forecast to have a 1 percent gain in earnings and those with more than half of sales from outside the U.S. are forecast to see earnings decline 11.2 percent.
That means that China and Europe need to stabilize to get better visibility on earnings.
As for the trade war, Wall Street is not convinced Trump will get rid of the old tariffs, in addition to declining to impose new tariffs. “The problem is tariffs are [U.S. Trade Representative] Lighthizer’s big stick. Keeping the old tariffs is the enforcement mechanism,” Young told me. “The best case is remove old tariffs but make it clear they will be brought back in case of noncompliance.”
Of course, this is a problem for the Chinese. They do not want to commit to allowing tariffs as an endless big stick against them.