The Week Ahead (January 28, 2019): Stocks and Gold
The week ahead for the markets – both stocks and gold – is tentatively looking towards the bright side. But there are still several major concerns that could derail equity markets in the midst of the current rebound. China will continue to play a key role with respect to investors’ risk appetite. More specifically, ongoing developments in U.S.-China trade negotiations and the very concerning economic slowdown in China will remain at the forefront of investor focus.
Meanwhile, President Trump announced a deal on Friday that will temporarily end the U.S. government shutdown for three weeks as negotiations over border security continue. At least for the time being, any pressure on the markets stemming from the prolonged shutdown has tentatively been alleviated.
Stock Market Technicals
Friday’s market close marked the fifth straight week of gains for all three major indexes – the DJIA, S&P 500, and Nasdaq Composite. This past week has also been the first since early October in which the S&P 500 has traded consistently above its 50-day moving average. That said, the benchmark index remains well under its more closely-watched 200-day moving average. And it’s still struggling to extend the sharp rebound and recovery that has been in place since late December. The S&P 500 continues to trade nearly 10% below its September peak (as of Friday’s market close). It has substantially more ground to cover before it can potentially resume the bullish trend that had been in place until October.
The Week Ahead for Stocks
We will likely continue to see choppy, news-driven price action next week, as there are many possible catalysts for sharp market moves. These include:
- A slew of company earnings releases (including Apple Inc. (AAPL))
- Possible developments in U.S.-China trade negotiations
- Another round of Brexit back-and-forth in the UK’s Parliament
- Ongoing U.S. government debate on border security, which will be tied to another possible U.S. government shutdown in three weeks
- Monetary policy and interest rate decision from the U.S. Federal Reserve on Wednesday
- Monthly U.S. jobs report on Friday
(See our Market Events & Earnings Calendar for more information on both scheduled earnings releases and major economic events.)
If the S&P 500 can remain afloat above its 50-day moving average amid these and other potential catalysts, we could see an extension of the stock rebound and recovery next week.
The Week Ahead for Gold – Shining Brightly
The chart of gold shows a rather dramatic surge on Friday. This was due in large part to the sharp drop in the U.S. dollar. Since gold is most often denominated in U.S. dollars, gold and the dollar are inversely correlated. As a result, when the dollar rises in value, gold prices tend to fall, and vice versa.
Another factor providing gold a tailwind has been the recent sustained fall in interest rates, as shown in the U.S. Treasury 10-year yield since November. When interest rates fall, non-interest-bearing gold has less competition from interest-bearing instruments, and gold prices tend to rise.
Technically, the chart of gold shows a recent ‘golden cross,’ which is a bullish pattern marked by the 50-day moving average crossing above the 200-day moving average. If interest rates remain subdued due to continued dovishness from the Federal Reserve, and the strong U.S. dollar continues to soften, gold could be given a further boost.
IMPORTANT: The information above should not be construed as investment advice and should not be considered as a solicitation to buy or sell securities. Trading and investing in the financial markets involves substantial risk of loss, and may not be suitable for all investors.
Disclosure: At the time of this article’s publication, we have no position in any security or trade/investment mentioned, nor do we have any business relationship with any company whose stock may be mentioned.
Senior Market Analyst at The Technicals
A veteran global macro trader/analyst, Bart focuses on major market moves in currencies, commodities, fixed income, and global equity indexes. Bart stresses inter-market correlations and dynamics while keeping a close eye on risk. He has published countless market analysis pieces and has been a guest expert for a variety of major financial media. Contact Bart