Stocks Wait For The Big News Events To Occur This Week

Slightly Positive Monday

Monday’s trading action was what you’d expect from a market anxiously waiting for big new events to unfold later in the week. The S&P 500 was up 0.11% which 4.57 points off the March high. The S&P 500 almost crossed above that point, but there was a minor selloff at the end of the day. This technical point and the all-time high are relatively meaningless in the face of the Fed meeting on Tuesday and Wednesday and the Trump-Kim meeting which will occur at 9AM on Tuesday in Singapore. That is 9PM Monday night in New York. As of the writing of this post, it looks like the meeting will occur. I’m not sure when it will end, but Kim is planning to leave at 2PM. That means the result of the meeting will be known before the stock market opens Tuesday. Unless it ends in disaster, I expect a modest exhale from investors, which would be a small rally.

Dollar & Treasury Action

The dollar index was up 4 cents to $93.61. If the North Korean summit goes well, I expect the dollar to sell off and if it fails then I expect the dollar to rally. That’s against natural instincts if you think about what is good for America, but it makes sense if you look at the dollar as a risk off trade. The 2 year treasury yield was up 2.25 basis points in anticipation of the Fed rate hike on Wednesday. The 10 year treasury yield was basically flat which means the curve flattened as you can see in the chart below. I don’t think the North Korean summit will affect the curve, but treasuries will rally if it goes awry, since that’s the risk off trade. The curve is the flattest of this expansion just as the Fed is meeting which means it will be discussed heavily. The CPI reading on Tuesday will also affect markets. The consensus estimate is for core CPI to be up 2.2% year over year.

(Click on image to enlarge)

Bear Market Checklist

I love to review checklists because they quickly show a complete overview of a macro thesis on the markets. I have generally disagreed with bear market checklists which show stocks will plummet soon. That has been the correct analysis for the past 2 years as stocks have rallied. Every checklist has new indicators to review. The table below shows one from Morgan Stanley.

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