This Bellwether Stock Says the US Economy is Still on Track

In a move that surprised no one, the US Federal Reserve moved on interest rates last week.

The rise had little impact, and midweek markets looked set for a comfortable weekend.

But markets took a turn for the worse on Thursday. Plans for China tariffs announced by the White House sent stock markets tumbling.

Fears of a trade war has the stock market scared

By days end, in a tit for tat response, China set out its own agenda for tariffs on US imports.

If China ups the ante, US farmers and companies which do a lot of business in China could be put at risk.

Markets hate uncertainty.

And no one knows where an all-out trade war between the world’s two largest economies will lead to.

That had markets jittery.

On all the trade war talk, US stock indexes fell heavily last Thursday and Friday.  The major stock market averages suffered their worst weekly losses in two years.

The S&P 500 is testing once more its 200-day line. Check it out…

S&P 500 27-03-2018

Source: Optuma
[Click to enlarge]

Clearly it has found support at this level before, so the 200-day line is a key level to watch going forward. I think it might find support here, let’s wait and see.

And here’s why.

In all the noise about a trade war last week, bullish reports on the US economy, seemed to get lost.

Market Watch reported on the initial job numbers for March,

The number of people already collecting unemployment benefits, known as continuing claims, fell by 57,000 to 1.83 million. That’s the lowest level since December 1973.

…New jobless claims were little changed in most states. Initial jobless claims have been hanging around the lowest levels since 1970 and show no sign of moving significantly higher.

…The unemployment rate recently fell to a 17-year low of 4% and is likely to dip below that mark in the next few months. And the economy added 313,000 new jobs in February, the biggest gain in a year in a half.

Another one that got lost last week came from the US Commerce Department. US durable goods orders leapt 3.1% in February, more than doubling the 1.5% increase expected. These are items meant to last three years or more and can range from toasters to aircraft.

That suggests continued business confidence to invest, and a strengthening global economy.

One part of the report closely watched as a proxy for business spending plans are the orders for non-defence capital goods, excluding aircraft. That number jumped 1.8% smashing all expectations. That’s the biggest gain in months and has some analysts raising up growth estimates.

Fed Ex earnings reflect US economy…

Also from last week, one of the best bellwethers for how the US economy is faring is tracking FedEx Corp. [NYSE:FDX], released earnings.

FedEx is one of the best readings of the US economy you can get.

Guess what?

Earnings and revenues beat all analysts’ expectations.

That suggests businesses are filling orders and sending a lot of goods to each other. That online sales are growing, and consumers have confidence to spend.

All that doesn’t indicate recession, not this year anyway.

Again, the daily movements in the stock market may spin and whirl on the news of the day. But the key is to keep your head, take some of the noise from the market, bring up the monthly chart and remind yourself of the long-term trend.

This time, here’s the monthly chart for the benchmark S&P 500 index…

S&P 500 27-03-2018

Source: Optuma
[Click to enlarge]

The long-term trend still looks to be up. Until it starts breaking below the moving average, or falling below prior levels of support, you can’t call a market collapse with any confidence.

This year is likely to be another strong year for stocks, but that’s not to suggest there might not be storm clouds on the horizon.

It comes down to understanding what really drives the economic cycle. And when you have that knowledge you can broadly know what’s coming next for the economy.

If you want to know more about this cycle and discover what’s in store for the economy in 2019 and beyond, go here.

Terence Duffy,
Lead Researcher, Cycles, Trends and Forecasts

Terence Duffy is an analyst and chartist, specialising in researching economic trends and cycles.  His primary focus is housing and land affordability. But you can also depend on him to offer his unique analysis of stock market charts. As Terence will show you, the charts often forecast, well in advance, the good or bad news to come — which he details in Cycles, Trends and Forecasts.

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