VIA NOVA UPDATE: Stocks boosted by trade deal hopes.

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  • The S&P 500 continued its rebound.

  • U.S. economic data mixed but solid.

  • Encouraging comments from both sides on possible China trade deal.

  • Coming Week: FOMC expected to leave rates unchanged.

The S&P 500 continued its rebound.

Encouraging comments from both U.S. and China representatives bolstered confidence that a trade deal of some kind could be reached by early April and lifted the S&P 500 nearly 3% in the latest week.  The trade dispute has been a dark cloud hanging over the economy and the markets since early last year, and a resolution would likely lift market sentiment, especially for stocks involved in trading with China.  Via Nova’s expectations of a possible China trade resolution are favorable for the U.S. but will likely fall short of an ideal pro-U.S. agreement.

The rise in the S&P 500 was led by the technology, healthcare and energy sectors and lifted the large cap index to its highest level since early October.  Small cap, international and emerging markets equities posted smaller gains.

Bonds were also boosted in the latest week by tame inflation reports and further comments from Federal Open Market Committee (FOMC) members about the desire for “patience” in assessing the need for additional interest rate hikes.  The yield on the 10-year Treasury note fell just below 2.6% on the developments, which allowed further declines in home mortgage rates and lifted the Bloomberg/Barclays Aggregate Bond Index by a quarter percent.

In other markets, oil prices continued to rise due to supply constraints in Venezuela, OPEC cuts, and expectations of additional sanctions on Iran.  The higher prices helped boost energy stocks, which is one of the leading sectors in the S&P 500 so far in 2019.  Real Estate Investment Trusts (REITS) rose as did Treasury Inflation-Protected Securities (TIPS).

U.S. economic data mixed but solid.

Via Nova believes U.S. economic momentum remains positive, and that the consumer is quite healthy and able to spend.  However, the combination of China trade tensions, slower growth in the EU, Brexit concerns and the fading aftermath of the record Federal shutdown have weighed on some businesses and prompted many to delay planned investment spending. 

The latest batch of economic reports was encouraging, though not uniformly positive.  Retail sales, small business confidence, durable goods orders and consumer confidence all exceeded expectations, while inflation remained steady near the Federal Reserve’s 2% target.  However, industrial output increased less than forecasted as did a New York Fed business survey measuring manufacturing activity for March.

Encouraging comments from both sides on possible China trade deal.

Comments out of both China and the U.S. suggest that a trade deal is increasingly likely by next month.  Chinese state media reported that Washington and Beijing were making "concrete progress" on the text of their trade pact, while President Trump said Beijing has been "very responsible and very reasonable" in their talks.  A resolution to the China trade dispute would remove one the top market risks on Via Nova’s Worry Checklist for 2019.

The Coming Week:  The FOMC meeting will likely be the focus.

The Federal Reserve will hold its next FOMC meeting Tuesday and Wednesday followed by a press conference held by Chairman Jerome Powell.Analysts widely expect the Fed to leave interest rates unchanged, so the market focus will shift to the press conference and hints about how the Fed might further adjust monetary policy in a more market-friendly manner.