Stocks Slap the Shutdown

If you work for the federal government, I hope you’re taking advantage of your extended vacation — unless you’re one of those employees forced to slog through your 9 to 5 without a paycheck.

Yes, your very own federal government remains closed for business as the stock market prepares to open for an abbreviated trading week. At 31 days and counting, we’re now experiencing the longest government shutdown in history — and Trump’s deal to temporarily protect some undocumented immigrants in exchange for wall funding doesn’t look like it has a chance in the Senate.

“The White House and Republican congressional leaders don’t appear to have crafted any contingency strategy if the president’s proposal fails a Senate vote,” The Wall Street Journal reports. “’No idea,’ one White House official said, asked about backup plans to end the shutdown.”

But Wall Street doesn’t seem to mind. Stocks have bounced off their lows, posting a strong comeback move since the shutdown officially started late last month. According to analyst Charlie Bilello, the S&P’s 10.5% gain is its best shutdown performance in history.

Go figure…

SPX

The major averages continued to march higher last week, building on their 2019 winning streak.

The Dow added more than 330 points on Friday before we adjourned for the three-day weekend, while the S&P 500 and Nasdaq Composite each gained more than 1%. It was their fourth-straight day of gains.

While the tech-heavy Nasdaq Composite took a back seat to the Dow’s 1.4% gain on Friday, semiconductors emerged as a top-performing sector. The VanEck Vectors Semiconductor ETF (NYSE:SMH) surged nearly 2.5%, topping its one-month highs as these beaten-down stocks continue to recover from the December meltdown.

SMH

I’ve kept a close eye on the chipmakers as these former tech leaders attempt to carve out meaningful bottoms. Just last week, I noted that prominent semiconductor stocks were some of the hardest hit names on the market. Advanced Micro Devices Inc. (NASDAQ:AMD) and NVIDIA Corp. (NASDAQ:NVDA) were some of the biggest losers of the fourth-quarter correction. Both stocks were cut in half during the meltdown.

Now we’re finally seeing some breakout action in NVDA and AMD. The tell happened at the beginning of last week as these stocks held their own even as the Nasdaq Composite dropped. By Friday, NVDA even poked above its 50-day moving average for the first time since October.

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Moving on to that global economic slowdown everyone’s been talking about.

Chinese President Xi Jinping is flashing additional warnings about the state of the Chinese economy to kick off the new trading week.

Speaking with party officials yesterday, Xi told Communist Party members he’s concerned about “serious risks” to political stability, Bloomberg reports.

“The meeting was held on the same day that China reported its slowest quarterly economic growth since the depths of the global financial crisis in 2009,” Bloomberg notes. “The data underscored concerns that the decades-long economic expansion that helped the ruling party outlast most other communist regimes may be running out of steam.”

Of course, Trump used the weak China data as an opportunity to make a case for China to finally cave to his trade demands:

Donald Tweet

Remember, Friday’s afternoon rally was attributed to reports that Trump was considering easing tariffs on China (which he later claimed were untrue).

Even though the government shutdown has everyone distracted, a trade war win for Trump would certainly juice the market — at least in the short-term.

Is China caught between a rock and a hard place and finally looking to negotiate?

We’ll see…

Finally, futures are sinking into the red this morning as investors digest the latest numbers from the IMF.

The International Monetary Fund cut its global growth forecast to 3.5% for 2019, MarketWatch reports, down from the 3.7% predicted for 2019 late last year.

The Dow is set to open lower by about 140 points, while the Nasdaq is on pace to drop almost 0.8%. We should expect some consolidation following the powerful rally posted over the past four weeks. But keep in mind that the market has rallied off its morning lows on several occasions during the January snapback.

Don’t rule out another red-to-green rally to kick off this short trading week.

Sincerely,

Greg Guenthner

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Greg Guenthner

Greg Guenthner, CMT, is the editor of Opening Bell Fortunes and Seven Figure Signals. He has been with Agora Financial/Seven Figure Publishing since 2005. In 2019, the average position in Greg’s Sunrise Fortunes portfolio outperformed the S&P 500 by 1.65x.

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