S&P Tests Key Support Level, But Issues Loom

February 21, 2019  |  Michael Reilly

The S&P 500 is inching ever closer to the 2,800-2,815 range, a key support level that hasn’t been breached since November 8th of 2018.

As we discussed last week, a lot of the positive market action we’re currently seeing is due to general optimism and good news out of Washington, mostly surrounding the U.S./China trade talks.

With the S&P price currently sitting around 2,780, every nudge counts, and further news could make or break the push to 2,800.

On Wednesday, the Federal Reserve released minutes from its meeting last month, an event many investors were waiting for. The minutes largely focused on downside risk to the economy, including “the possibilities of a sharper-than-expected slowdown in global economic growth, particularly in China and Europe, a rapid waning of fiscal policy stimulus, or a further tightening of financial market conditions.”

However, as of now this release hasn’t had a significant impact on the market. The US dollar hit its session low after the release but later rose to break even, and VIX, the market’s “fear gauge”, dropped 3.2 percent. If anything, the release of the minutes appears to have boosted markets slightly, probably due to their continued assurance that they will be “patient” in tightening monetary policy and keep interest rates unchanged.

Analysts speculate that optimism surrounding the trade talks has been a large factor in the current stock market tear. Unfortunately, this is one area in which uncertainty still looms.

Although government officials last week were optimistic about their ability to reach a resolution by the March 1st deadline, they’ve now slightly backtracked on this, and have given no clear indication of weather tariffs will be raised or not.

However, at this time an extension of the trade deadline isn’t necessarily being seen as a bad thing. There’s a possibility that the talks may be extended by as much as sixty days, which could leave the markets in a bit of a stalemate, but it’s unlikely that it will cause a significant dip. In fact, this could lead to continued momentum in the market, as neither country will impose additional tariffs in the event of an extension.

President Trump and Chinese president Xi Jinping have discussed the possibility of a meeting in the near future, with the intent of reaching a trade resolution. As one of the biggest influences in the market currently, investors will definitely want to keep their eyes peeled for new information if this meeting does indeed come to pass.

Of course, if you’re a relative strength investor, it’s possible that some of this uncertainty over the trade talks is a moot point anyway. As we say: “there’s always a bear market somewhere”, and if you’ve concentrated your holdings in stocks with high relative strength scores, you’re likely seeing some of that bear market action right now.

If you’ve personally fallen victim to some of the “market uncertainty” that seems to be ever present in financial news headlines, it might be time for a portfolio evaluation and possible rebalancing that can help you minimize some of your downside risk.

Rowe Wealth offers free evaluations to anyone with a portfolio with at least $500,000 of investable inventory. If you’re not already one of our clients, feel free to view a list of available appointment times today.

As always, invest wisely.

Michael Reilly

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