After Dow tops 28,000, the next 1,000 points will be determined by trade talks

Stocks bounced on trade headlines on Friday, but the market could stall out in the week ahead if there is no real progress toward a deal.

Stocks ended the week at record highs, but Treasury yields unwound half the big move of the prior week, as doubts surfaced about a trade pact getting completed.

The Dow soared above 28,000 for the first time, ending the week at 28,004, with a gain of 1.2% for the week. The S&P 500 ended the week up 0.9% at 3,120.

In the coming week, there is a last blast of earnings, from a few big retailers including Home Depot, Macy’s and Target. Walmart in the past week raised its outlook and said consumers looked healthy going into the holiday season.

There are some economic releases, but the most important report will be the Fed’s minutes from its last meeting. At that meeting, the Fed cut interest rates and Fed Chairman Jerome Powell signaled that it was done with policy changes for now.

There is housing data with housing starts Tuesday and existing home sales Thursday. There is also Markit manufacturing and services PMI, which will be watched carefully Friday for signs of a pickup in manufacturing activity or any spillover from manufacturing weakness into services.

“We’ve had Powell speak. It’s crystal clear at this point on what the Fed is thinking going forward,” said Stephen Stanley, chief economist at Amherst Pierpoint. “It feels like with retail sales behind us we go to the half of the month where things are going to be pretty quiet for a while.” Powell also testified in the past week, on both Wednesday and Thursday, before congressional committees.

It’s trade that could be the big factor for the market. In the past week, stocks barely budged when trade news pointed to a possible lack of progress and the focus was on demands by the Chinese to roll back tariffs. But stocks turned around and rallied Friday on comments from White House top economic advisor Larry Kudlow, who said the U.S. and China were getting close to a deal.

“Honestly, next week it’s going to be every day: ‘Give me the details on the trade deal,'” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. He does expect a deal, but the markets have been trading for weeks on the expectations one would come any day.

“They’re desperate to do something. They know they can’t leave the market hanging at all-time highs without a written agreement,” said Boockvar.

As stocks rallied to new highs in the past week, Treasury yields backed off recent highs. The 10-year Treasury, after hitting a high yield of 1.97% the week earlier, was at 1.83% Friday. Yields move opposite price.

“Our view is given the rally in the market, and unless we get really, really concrete indications of a trade deal being done and a date being set for signing, there is a potential for a pause in the rally in our view,” said Julian Emanuel, head equities and derivatives strategist at BTIG.

Emanuel said the impeachment hearing is not impacting the market and investors are ignoring it for now. “If headlines from Washington between Republicans and Democrats become more contentious that could become a focus as well,” he said. But for now, investors do not expect the Senate to find that President Donald Trump did anything wrong though he will probably be impeached by the House.

Stocks could ignore that unless the hearings uncover something that would change the tone of the investigation enough to move Republicans to support impeachment of the president.

Emanuel said he expects the market to correct either this year or in the first part of next year.

“We actually think the potential for consolidation in the market in the near term is kind of ripe because we’ve gone a long way since the fourth quarter started,” Emanuel said. The S&P 500 is up 4.8% quarter to date and up 24.4% year to date.

Emanuel said he believes if there is a sell-off, the market will recover and continue its move higher. He said one reason the market rally could keep going and a sell-off would not be severe is that investors are still apprehensive about the stock market. He said many are confused about where to invest and are not piling into the rotation into cyclicals and away from defense.

“We’ve seen people basically adding market exposure,” Emanuel said. “The embracing of the rotation is probably only in the second or third inning. … We think the ninth inning is by the middle of next year.”

Emanuel and other strategists say that trend is powerful enough to keep the market going higher.

Monday

8:30 a.m. Business leaders survey

10:00 a.m. NAHB survey

12:00 p.m. Cleveland Fed President Loretta Mester

4:00 p.m. TIC data

Tuesday

Earnings: Home Depot, TJX, Kohl’s, Aramark, Medtronic, Campbell Soup, Foot Locker, Urban Outfitters

8:30 a.m. Housing starts

9:00 a.m. New York Fed President John Williams

10:00 a.m. QSS

Wednesday

Earnings: Lowe’s, Target, Salesforce.com, L Brands

2 p.m. FOMC minutes

Thursday

Earnings: Macy’s, Nordstrom, Gap, Intuit, Ross Stores, Berry Global, Momo

8:30 a.m. Initial claims

8:30 a.m. Philadelphia Fed

8:30 a.m. Cleveland Fed’s Mester

10:00 a.m. Existing home sales

Friday

Earnings: JM Smucker, Buckle

9:45 a.m. Manufacturing PMI

9:45 a.m. Services PMI

10:00 a.m. Consumer sentiment

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