U.S. stock indexes sagged Monday, showing once again that the market can't find traction despite a strong earnings season. McDonald's (MCD) rose 5.75% on a strong Q1 report but the benefits didn't spread marketwide.
XMeanwhile, the Federal Reserve is set to begin a two-day meeting Tuesday.
The Dow Jones industrial average reversed to a 0.6% loss, after being up almost 0.8% earlier. The Nasdaq and the S&P 500 fell 0.8% each, after wiping out earlier gains.
Volume in the stock market today fell across the board.
A step down in volume was perhaps natural, considering the Fed's meeting later this week.
CME Group's FedWatch Tool puts the odds of a rate increase at about 7%. The probability of no change is pegged at almost 93%.
The major indexes have been encountering resistance at their 50-day moving averages over the past six to seven sessions. If the stock market is to shake off the negative pressure, retaking the 50-day line is an important first step.
Among market watchers, the recent worry is the narrowing of the spread between the 10-year yield vs. the 2-year yield. But the problem with using the yield curve for market guidance is that "recessions typically haven't begun until 20 months after the curve inverts," as IBD Weekly's cover story "The Big Squeeze" pointed out.
And not every economist agrees that yields should be the top focus right now. Johns Hopkins University economist Steve Hanke argues that the broad money supply as measured by Divisia M4 is a better guide to the economy. So far this year, Divisia M4 grew 4.8% in January, and 5% each in February and March.
Hanke calls that kind of growth "not bad" and points to an economy where "everything is running pretty smoothly."
Focus On What's Happening
Then why is the stock market struggling? It's much more useful to focus on what's happening than to search for causation. Individual investors should closely follow the charts for the Nasdaq and S&P 500.
What are they showing? The choppiness that began in early February is still in place.
On Monday. leaders advancing included Mastercard (MA), up 1.3%, and retailer Canada Goose (GOOS), up 1.4%.
Mastercard will report Q1 results Wednesday before the market's open.
What Could Save This Lackluster Market?
Several items stand ready to break for either good or bad.
First, banks are now expected to win at least a partial battle against some Dodd-Frank regulations. The Hill reported that Congress is near passage of a bipartisan package.
Second, a decision on steel tariffs is near. Temporary exemptions for the European Union are about to expire. President Trump reportedly hasn't made a decision. Also, Treasury Secretary Steven Mnuchin is expected to leave for China soon for trade talks.
Third, IBD's industry group lineup has taken definition. Going into Monday's session, only 10 sectors are outperforming the Nasdaq. New leaders could emerge from the outperforming sectors.
The 10 sectors are software, up 13% year to date; consumer, up 8.2%; medical, up 6.9%; leisure, 6.3%; business services, up 6%; retail, up 5.8%; savings and loan, up 5.5%; apparel, up 4.6%; energy, 4.2%; and banks, 4%.
Fourth, Trump implied that he can save the market. Speaking in Michigan recently, Trump admitted he is doing something that "bothers the market." He said the stock market "would've been up 60%, but I have to do things. I can't let other countries take advantage of us, so we're doing trade deals."
The implication is that the market will recover once Trump finishes doing things that bother the market.
McDonald's Surges
McDonald's rose almost 6%, hoisting the stock over its 50-day and 200-day moving average lines after a strong quarterly report. Earnings increased 22% vs. the year-ago quarter.
The Street expected earnings growth of 14%. Q1 revenue dropped 9%, but analysts expected a 12% decline.
McDonald's is basing in a 18%-deep consolidation. The stock is 7% under a high marked in late January.
Coming Up
The Federal Reserve's meeting Tuesday and Wednesday isn't expected to create big waves. The Street expects the Fed to stand pat on rates for now. An increase now would be a shock.
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