Stock Market Forecast- Stocks Close Lower but Most of FANG Experience a Stealth Rally

US stocks sold off on Monday, after opening with solid gains, but mid-morning prices moved south sending the VIX higher. The VIX finished off the highs of the session and stocks rallied from session lows. The rebound was driven by gains in Amazon, Facebook, and Apple. The positive sentiment was driven by positive commentary on a Sino-US trade deal, but that was offset by a worse than expected US construction spending figure. Jobs data will headline this week. On Wednesday ADP will release private payroll data. On Friday, the Department of Labor will report Non-farm payrolls. Expectations are for a 185K increase in US jobs in February.

Most sectors were lower on the session led down by healthcare (-1.56%) and Cyclicals (-0.74%). Real-estate and Utilities which are defensive stocks bucked the trend. Oil prices were also higher allowing the energy sector to settle slightly in the black up 0.12%. Over the last 18-trade sessions, prices are higher, but the mood has changed since that period with many sectors showing no-gains over the past week.

Construction Spending Eases

US construction spending unexpectedly fell in December an a both private and public projects investing declined. Construction spending dropped 0.6% month over month after an 0.8% rise in November according to the Commerce Department. Expectations were that construction spending would increase by 0.2% in December. This follows a weak ISM manufacturing report, which came in the wake of soft US retail sales and industrial production. The soft data will provide a put under the market as the Fed is likely to remain on hold.

Construction spending increased 1.6% year over year in December. It rose 4.1% in 2018, the weakest reading since 2011. This could definitely reduce the Q4 GDP figure which was reported initially as 2.6% year over year. The main catalyst for the drop came from investment spending which dropped 1.4% after rebounding 3.4% in November. Private construction was also small dropping 0.6% in December after a 1.3% rise in November.

Central Bank Watch

The ECB meeting Thursday.  Expectations are that there will be no change in policy. Additionally, Mario Draghi will likely provide a dovish outlook that helps buoy riskier assets. The staff projections are likely to reflect the deteriorating growth outlook.

US Chinese Trade Talks Are Generating Volatility

The VIX volatility index surged higher but settled well off the highs. What is currently priced into the market is a Sino-US trade deal. The markets will likely continue to rise even after the deal is complete if there are no hiccups. If there are any hiccups, the markets could experience significant volatility. The VIX would surge off its lows, and stocks could recoil revisiting the 2019 lows.