Stock Market Shrugs Off Bad Trade News... Again
Stock Market Shrugs Off Bad News Again
We'll let the rest of the news media report the details of the back and forth of the trade war between China and the US. We admit, it's scary to read.
But even with Friday's helping of "bad news" the S&P 500 (NYSEARCA:SPY) was only down .13%. That's nothing.
What generally goes unreported with all these negative headlines though is how the stock market responds to the news.
This market has been a champ shrugging off trade war news, interest rate spikes, a more hawkish Fed, G-7 issues, you name it.
In the recent week, on Wednesday the Fed surprised the Street by announcing plans for an additional rate hike. The market should have been killed, right? Not so. The market was down .32% on Fed Wednesday and closed higher on Thursday. It shrugged off what could have been a good reason for a stock market drop.
Strong Market "Action"
There is something very bullish underlying in this market. You won't get that by reading the headlines about a trade war. You will get that when measuring what the market should do versus what the market does.
That comparison of what the market does versus what it should do is a trading signal called "action." Good traders pay attention to it all the time for clues.
When you get bad news, like we've had day-after-day, and the market doesn't react too negatively, you have a bullish signal that something's much more positive underlying.
That's where we are now.
What's So Bullish That The Market Keeps Shrugging Off Bad Trade News?
Earnings are ultimately what drives stocks. We want to own shares in a company because we then attach to that company's future earnings stream. When the earnings picture improves stocks become worth more.
That's what's going on right now. That's the support underlying this market despite all the negative headlines.
Q1 2018 had the strongest earnings growth since 2011. Q2 is set up to grow even faster than Q1.
We're focused on tech. Besides energy and materials (because of the jump in oil prices) the tech sector had the next best earnings growth in Q1. What's more is the tech sector had the largest earnings surprise in Q1 than any other sector (page 12). Finding what companies will beat in tech is our focus.
That underlying earnings push higher is supporting the stock market from falling on all of this "bad news."
We were bulled up on tech ahead of Q1's earnings season even with the stock market down. So far, we're early but our work shows that Q2 earnings could be even better than Q1. If so that gives us even more conviction that despite all the tough headlines this market wants to go higher.
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We have no positions of the stocks mentioned.