Volatility was smashed last week below 13.00 headed into the triple witching on Friday – and this perpetuated a slow steady grind higher in stocks. Energy, and utility sector continues to lead stocks on the upside (which perform well when the growth component of the economy slows while inflation “reflates”). The CFTC positioning report on Friday showed the net short position in the S&P 500 shrink by 40K contracts, with an outstanding short position of 50K (which we no longer consider a consensus short position). As we move into Q1 2019 earnings, we still have negative aggregate EPS and profit growth and that should result in few stock buy backs going forward – that’s the call our research is suggesting and we’ll stand behind it.
Trump/Xi Jinping UPDATE: They’ve moved the meeting to June….so all those rumors and tweets by the president and his economic advisor Larry Kudlow about an imminent U.S./China trade deal were pretty much all theatrics. China doesn’t want to do the deal that we’ve put in front of them, that’s pretty evident. How this develops is anybody’s guess at this point – kicking the can down to June.
Fed on Wednesday – Will they be dovish enough is the question. The Fed pivoted to dovish in December (from all out Hawkish in Sept/Oct), and 10yr yields have steadily grinded lower since as a result, and we believe they still have room to go lower.
Gold: Still looks ok and will likely make a decision following the Fed decision. We still think the Dollar has another move higher which could put some near-term pressure on Gold – But we’re buyers again at a re-test of the low end of our range.
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