The U.S. stock market indexes did a good job of brushing off continued news out of Turkey and the Emerging Markets (NYSEARCA: EEM) space. But that may change this week.
We expect stocks to trade lower as the emerging markets woes continue to stay in the news.
S&P 500 Cycle Outlook for the Week of August 13, 2018:
– Â The stock market rose last week, with the S&P 500 (INDEXCBOE: .INX) up 17 points to 2850, an increase of 0.6%.
– Â However, emerging market risks continued to gnaw on global markets, as financial contagion spread and commodities sank as low as 3% before recovering.
Our projection this week is for the S&P 500 to decline to near 2800, as the US finds that immunity to this contagion is difficult to sustain.
Stock Market Weekly Video:
On Monday, fears of an emerging market contagion took hold, as the crash of the Turkish Lira spread to other currencies, including the South African Rand, Argentine Peso, and Brazilian Real.
Yet by Wednesday, Qatar’s pledge to inject $15 billion into the Turkish economy helped contain the fears – for the time being. As well, the US and China reached an agreement to loosen the tension in their trade dispute, as China agreed to send a vice minister to hold talks with the Treasury Department on August 22-23.
Nonetheless, commodities were hit hard, with the Deutsche Bank Commodities Index (DBC) down over 2% on Wednesday alone, later recovering but still down 1.3% on the week. The MSCI Emerging Markets Index (EEM) was down 2%.
Beyond this, Tesla sank 14% on the week, as the Securities and Exchange Commission began an investigation of CEO Elon Musk’s premature disclosure of information about the feasibility of his plans to take the company private at a much higher share price.
Conversely, Apple (AAPL) was up 5% on the week. This happened after news arose that Warren Buffett’s Berkshire Hathaway (BRK.B) continued its effort to build a stake in Apple, which has a price to earnings ratio still lower than the overall market.
With regard to larger economy, while retail sales in the US and UK came in above expectations, industrial production in both China and the US missed, with the Philadelphia Fed Manufacturing Index registering its lowest reading since November 2016.
Over the past month, US stocks were up over 1% and Emerging Markets (EEM) were down nearly 4%. As such, it’s clear that the US continues to be an island of economic strength. However, with signs of distress continuing to appear, it’s not clear whether it’s possible for the island to sustain its immunity from the flood of economic contagion. Let’s take a look at what might happen this week in the S&P 500.
S&P 500 (SPX) Daily Chart
Our analysis is for the S&P 500 to move lower, within the context of its current minor cycle. As we are 13 days into a 21 day cycle, we expect the declining phase to start to exert more influence.
Our current short-term projection is for the S&P 500 to decline to near 2800, but lower levels are certainly possible. We expect risks to increase towards the end of the next declining phase coming in mid-September.
For more from Slim, or to learn about cycle analysis, check out the askSlim Market Week show every Friday on our YouTube channel.
Twitter:Â Â @askslim
Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
