* U.S. stocks edge up, but off early highs
* European shares close slightly higher
Aug 28 (Reuters) - Welcome to the home for real-time coverage of U.S. equity markets brought to you by Reuters stocks reporters and anchored today by Chuck Mikolajczak. Reach him on Messenger to share your thoughts on market moves: charles.mikolajczak.thomsonreuters.com@reuters.net
WALL STREET FLAT AFTER TWO-DAY RUN; CANADA EYED (0400 PM EDT/2000 GMT)
Stocks closed near the unchanged mark on Tuesday, giving up early gains that had pushed the S&P 500 over the 2,900 mark. This as Canada rejoined talks on an overhauled trade deal.
The S&P .SPX had rallied nearly 1.4 percent over the past two sessions, in part due to an agreement between the U.S. and Mexico on an altered North American Free Trade Agreement.
Canada, which was not part of the recent talks, was now on the clock to decide on the deal after President Donald Trump said he could proceed with only Mexico, although U.S. officials expressed optimism an agreement could be reached this week. are trying to figure out whether it pays to stay in (the market) or would it be prudent to take profits now that we got the bump on recent positive trade news," said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana.
Energy .SPNY shares kept gains in check, as shares reversed course and turned lower as oil prices fell on profit-taking after Brent hit a seven-week high. Mikolajczak)
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NYSE FANG+TM INDEX: SEPARATION MAY SUGGEST A TROUBLED MARRIAGE (0345 PM EDT/1945 GMT)
NYSE FANG+TM Index .NYFANG is lagging action in a number of the major averages. Indeed, it may be a bit of a surprise to see the S&P 500 .SPX and Nasdaq 100 .NDX hit record highs without this index of high-profile growth stocks doing the same.
NYFANG is equal-weighted and includes 5 core FAANG stocks: Facebook FB.O , Apple AAPL.O , Amazon.com AMZN.O , Netflix NFLX.O and Alphabet GOOGL.O . Plus it includes another 5 actively-traded technology/growth stocks: Alibaba (NYSE:BABA) BABA.N , Baidu BIDU.O , Nvidia NVDA.O , Tesla TSLA.O and Twitter TWTR.N .
The FANG stock index is up about 30 percent this year. That's well ahead of the SPX's 8.4 percent rise and the NDX's 18.5 percent gain.
That said, as mentioned, NYFANG is equal weighted and those indices are cap weighted. Nevertheless, its rise compares even more favorably to the Nasdaq-100 Equal-Weighted Index Shares QQQE.K which is up just 10 percent in 2018.
NYFANG actually topped on June 21, and it's still down over 5 percent. This, while, even QQQE, has moved to new highs in both late-July and this past week. (Click on chart below)
Thus, given this decoupling, it remains to be seen whether the broader market can reconcile suddenly dull FANGs, or whether those dull FANGs may ultimately lead to a toothless market. Gabriel
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GRIDLOCK IS GOOD: S&P 500 RETURNS OUTSIZED AROUND MIDTERMS - UBS (0255 PM EDT/1855 GMT)
Around the 17 midterms elections since 1950, S&P 500 .SPX returns have averaged 6.8 percent from the end of August to year-end versus 3.4 percent for other years, according to a UBS equity strategy note.
Lead analyst Keith Parker says that extending the period from August to the end of March, the S&P has risen 14.5 percent on average versus 6.1 percent for other years. He cites that returns were negative in just two instances (1978 inflation, 2002 burst of the technology bubble).
Midterms have resulted in the incumbent President's party losing an average of 24 House seats and 3-4 Senate seats, according to the note.
"Losing seats in Congress is a check on Presidential power; gridlock is good," writes Parker.
The implementation of 10 percent tariffs on $200 billion of Chinese imports in September is likely to lead to a 2 percent or more S&P decline, similar to the average midterm.
Assuming tariffs are not escalated, Parker advises to buy the dip in early October.
Defensive plays have not outperformed in the lead-up, while healthcare .SPXHC has "done much better" around the midterms, he writes. Afterwards, the technology sector .SPLRCT has been the biggest outperformer.
Here is a UBS chart showing S&P 500 performance around midterms vs. the average of all other years:
Lance Tupper
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STOCKS POST SLIGHT GAINS, OFF EARLIER HIGHS (0201 PM EDT/1801 GMT)
Stocks were showing slight gains heading into the latter stages of trading, but were off earlier highs that sent the S&P 500 .SPX above the 2,900 level for the first time.
Investors paused after major indexes had rallied in the prior two sessions, buoyed by comments from Federal Reserve Chairman Jerome Powell on Friday and after a deal between the U.S. and Mexico on Monday eased concerns about escalating trade disputes.
Energy shares .SPNY reversed course and turned negative, which served to curb gains on major indexes. Oil prices retreated after Brent hit a seven-week high as some investors booked profits, although the trade deal helped limit the declines.
(Chuck Mikolajczak)
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MIXED SIGNALS ON ECONOMIC SENTIMENT (0137 PM EDT/1737 GMT)
Today, the Conference Board released the August reading for its consumer confidence index, which jumped to its highest level since October 2000. The Conference Board's survey reflected confidence in the job market as unemployment has dipped to historic lows. Conference Board's findings, however, are pretty much the opposite of the University of Michigan's consumer survey earlier this month, which showed sentiment falling to an 11-month low. The Michigan reading is one of the factors Morgan Stanley (NYSE:MS) Wealth Management's Lisa Shalett pointed to in forecasting a downturn for consumer discretionary stocks. what to make of these conflicting indicators? According to financial research firm Fathom Consulting, it may simply be a matter of consumer sentiment falling closer in line with actual GDP growth after running hot for some time. The firm's own U.S. economic sentiment indicator dipped slightly in July, as businesses expressed concern about trade disputes.
But relatively speaking, sentiment remains high, according to Fathom. "We have argued for some time that GDP growth and our (indicator) readings would converge, with the former picking up and the latter slowing, and that happened in the second quarter," the firm said in a blog post http://lipperalpha.financial.thomsonreuters.com/2018/08/chart-of-the-week-us-economic-sentiment-falls-in-july at Lipper Alpha Insight.
Below is the chart of Fathom's economic indicator versus U.S. GDP growth.
(April Joyner)
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SPDR S&P 500 ETF: CURBED ENTHUSIASM (1225 PM EDT/1625 GMT)
Lagging S&P 500 Index .SPX momentum can potentially be one indication of a less than robust thrust to new highs. sign of the market's vigor, or lack thereof, can be volume.
With August about to close out, and despite the euphoria of new highs, SPDR S&P 500 ETF Trust SPY volume is on track for a 6th straight monthly decline.
Admittedly, volume study can be nuanced, and of course turnover may tend to slow during the summer months. Nevertheless, you do still have to go back 9 years to see volume contract for 6 straight months. (TR data)
Even accounting for SPY's record high levels, raw money flow (typical price x volume) is on track to end the month at its lowest reading since July 2017.
And the Money Flow Index, another measure of the market's enthusiasm, is diverging vs. SPY price action on a monthly basis. Current readings are much weaker than the levels leading into SPY's January high. (Click on chart below)
Timing can be blunt, but a diverging money flow index did accompany major SPY tops in 2007, 2011 and 2015.
Terence Gabriel
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SMALL-CAP EARNINGS JUSTIFY INVESTOR FAITH (1140 AM EDT/1640 GMT)
With earnings season nearly complete for both large caps and small caps, it appears investors' run to the smaller names over tariff battles has paid off.
Since March 31, the Russell 2000 .RUT has rallied nearly 13 percent while the S&P SmallCap 600 .SPCY has jumped more than 16 percent, outpacing the 9.7 percent run in the S&P 500 .SPX as investors viewed smaller names as being more insulated from global trade spats.
Steven DeSanctis, analyst at Jefferies in New York, points out that Q2 earnings for small names were up 26.8 percent besting the 24.9 percent growth in large names and 23.7 percent growth for mid caps.
That growth was the best for small caps since Q4 of 2010. And revenue, with a 9.8 percent growth rate, was its best since Q3 2011, according to DeSanctis. Earnings growth for small names beat large for the first time since Q2 2016.
On a sector basis, healthcare led the charge for small caps with 49.3 percent growth.
DeSanctis thinks we could see 20 percent or greater growth in small caps over the next two quarters as the economy grows close to or above 3 percent.
(Chuck Mikolajczak)
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STOCKS UP AS TRADE WORRY EASES; S&P TOPS 2,900 (0944 AM EDT/1344 GMT)
Stocks are continuing to advance shortly after the open as the recent deal between the U.S. and Mexico to overhaul NAFTA helped ease concerns global trade disputes would continue to escalate.
The S&P 500 moved further into record territory, crossing the 2,900 threshold for the first time.
The lessening trade worries also sent the dollar lower, which helped boost commodities and lifted the energy .SPNY and materials .SPLRCM sectors. prices continued to ascend, with Brent LCOcv1 touching a seven-week high of $76.97. Along with the weaker dollar, crude was lifted by evidence of still-modest increases in output from OPEC and improving Chinese refinery demand. Mikolajczak)
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S&P 500 INDEX: KEEP YOUR SEAT BELTS FASTENED (0915 AM EDT/1315 GMT)
Although the S&P 500 .SPX is climbing to fresh record highs, it may be hard, in any event, to avoid turbulence ahead.
Monthly momentum studies threaten to show the same divergence that accompanied major tops of the past 20 years. (Click on chart below)
Indeed, as the SPX was peaking in January, the monthly RSI was reaching its most overbought reading in history. The SPX quickly plunged about 12 percent in just 10 trading days.
Seven months later the index is on a 5-month winning streak, making fresh highs. However, the RSI, after plunging into a March trough, is still well shy of its January peak.
Therefore, any setback on a monthly basis can solidify divergence, and warn of major reversal potential. the SPX can maintain an uninterrupted ascent, and the RSI can exceed the extreme level reached in January, it will then, once again, be historically overbought.
As was seen, even a setback to alleviate such an overheated condition can be vicious. Thus, one way or the other, an air pocket, or increased volatility, may be ahead.
Terence Gabriel
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STOCK FUTURES POINT TO MODESTLY HIGHER OPEN (0846 AM EDT/1246 GMT)
Stocks were poised for a modestly higher open on Tuesday, after a second straight day of gains put the S&P 500 and Nasdaq at record levels, as investors hoped a trade deal between the U.S. and Mexico was the start of defusing global trade tensions.
Canadian Foreign Minister Chrystia Freeland is expected to travel to Washington for talks on Tuesday after Canada sat out most of the recent talks to overhaul the North American Free Trade Agreement. President Donald Trump spoke by telephone with German Chancellor Angela Merkel on Monday where the two "strongly supported ongoing discussions" on trade, according to the White House. trade hopes help lift European shares to a two-week high, while Asian shares were mixed as Chinese shares declined. Mikolajczak)
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https://reut.rs/2mKwi3Y Futures point to modestly higher open
https://reut.rs/2ME8H4n SPX 0828 2018
https://reut.rs/2MBf3S5 Stocks modetsly higher as S&P tops 2,900
https://reut.rs/2PIHQSt Smallcap earnings growth by sector
https://reut.rs/2LxaJ0E SPYMF 0828 2018
https://reut.rs/2MASRaA U.S. economic sentiment indicator
https://reut.rs/2LA9k9u Stocks higher in latter stages, but off highs
https://reut.rs/2LBpY8R MidtermsUBS 0828 2018
https://reut.rs/2MyqzgO FANG 0828 2018
https://reut.rs/2LyZt3Z Closing levels for Aug. 28
https://reut.rs/2LyU8JG
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