It is amazing how one word can change the whole trajectory of trillions of dollars worldwide. PATIENCE.
After entering the week severely overbought, indexes sold off modestly Monday and were near flat Tuesday. Then the Federal Reserve reiterated a very dovish stance – PATIENCE – and markets were back off to the races with sharp rallies Wednesday and Thursday. A nice employment report Friday didn’t move the needle too much Friday. So we remain in our V shape bounce; that’s six up weeks in a row – all thanks to one Jerome Powell/Yellen/Bernanke/Greenspan – it’s all the same in the end!
Powell denied that the central bank was aiming to keep financial markets from falling too much, a so-called “Powell Put.” (sure Jay – wink wink… the first major selloff in 2 years and within 6 weeks the Fed changes stance 180 degrees)
This was also the best January since 1987 for the S&P 500.
For the month, the S&P 500 climbed 7.9% for its best January since 1987, while the Dow rose 7.2%, its best January since 1989. The NASDAQ had its best January since 2001 on the back of a 9.7% monthly gain.
While there is a slowdown happening – especially with companies facing China….
“Earnings numbers are showing definitively that the China slowdown is having an impact on U.S. companies,” said Mark Esposito, president of Esposito Securities. “There was reason to think that Apple’s trouble was company specific, but now we’re seeing these other bellwethers like 3M and Caterpillar check in to say they’re also feeling the pain,” he said.
All that matters to markets the past decade plus has been this…
The Fed held rates unchanged at a range of 2.25% to 2.50%, as widely expected, but dropped its longstanding reference to “further gradual” rate hikes. Instead, it emphasized that it will be “patient as it determines what future adjustments to the target range for the federal-funds rate may be appropriate to support these outcomes.” The central bank further surprised investors by issuing a separate statement regarding its $4 trillion balance sheet, indicating an unwind of that asset portfolio could end sooner than expected. The Fed cited market turbulence as one key consideration for its softer tone.
“Much to no one’s surprise, the Federal Reserve held policy rates steady in the target range of 2.25% to 2.50% today. Consistent with recent dovish-leaning rhetoric from both Chair Powell and several FOMC officials, the Federal Reserve has adopted an increasingly cautious approach in response to heightened global growth uncertainties, financial market volatility, and the fragile trading relationship between the U.S. and China.,” said Candice Bangsund, portfolio manager at Fiera Capital. “We expect the Fed to take a pause and remain sidelined through the first half of the year in order to monitor the evolution of the macroeconomic landscape.”
In economic news, January employment came in well above expectations while December was revised down sharply.
The U.S. economy created 304,000 new jobs in January, well above the consensus estimate of 172,000. At the same time, job growth for December was reduce by 90,000, somewhat blunting the impact of the headline number. The unemployment rate ticked up to 4% from 3.9%, partially as a result of federal workers not receiving paychecks for much of January.
For the week the S&P 500 gained 1.6% and the NASDAQ 1.4%.
Oil looks like it may be breaking out of an inverse head and shoulders pattern – it’s always a tricky one as it’s far more news based than a typical stock or index but this is a classic bullish pattern.
Here is the 5 day weekly “intraday” chart of the S&P 500 … via Jill Mislinski.
The week ahead…
This will be the last heavy week of earnings reports of S&P 500 companies. For yet another week we enter Monday severely overbought. PATIENCE.
Short term: More “V”s.
Unlike 2018, the Russell 2000 seems to be patterning itself pretty closely to the S&P 500 and NASDAQ of late.
The NYSE McClellan Oscillator remains in extremely overbought conditions for 4th recap in a row. It remains consistently OVER level it usually PEAKS at. Very rare indeed.
Long term: The “V” is on… the S&P 500 is getting to a very interesting area just below the trend line it broke this fall that had held for almost 2 years. So when it gets there it will be interesting to see if it now serves as resistance – that level is in the upper 2770s.
Charts of interest / Big Movers:
In a different market, some of the earnings misses from global companies such as Caterpillar, Apple, and Nvidia may have had a lingering effect due to worries of a global slowdown, but we are in a “patience” market with a Federal Reserve “put” back in place, so it only mattered for a day.
While it’s a bit difficult to tell on the chart, Caterpillar (CAT) actually sold off 9.1% Monday after the company missed fourth-quarter earnings estimates.
Nvidia (NVDA) also had a rough Monday as it sank 14% after the chip maker said it expects to report $2.2 billion in fiscal fourth-quarter revenue, below its previous outlook of $2.7 billion.
“The Nvdia profit warning is [hurting market sentiment] more than the Caterpillar earnings miss,” Larry Benedict, chief executive of the Opportunistic Trader told MarketWatch Monday. “Slowing demand in China hit them hard,” he said, causing investors to worry that Chinese “demand has slowed more than people imagine.”
Apple (AAPL) had a pretty bad report but it wasn’t “as bad as expected” so the stock rallied sharply Wednesday.
The key metric in the release was its March quarter revenue outlook, which came in at $55 billion to $59 billion. The consensus forecast calls for $58.9 billion, far below the $64 billion that analysts had been projecting at the end of December. As expected, China proved a weak point during the quarter. Greater China accounted for $13.2 billion of the company’s revenue in the period, compared with nearly $18 billion a year earlier.
Tupperware Brands (TUP) tumbled 27% Wednesday after the firm reported fourth-quarter revenue below expectations.
Facebook (FB) surged 11% Thursday after the company reported record profit and said it added 1 million daily users in U.S. and Canada. Right back to it’s 200 day moving average. So much for privacy concerns!
“With these results, Facebook has clearly demonstrated that the challenges of 2018 have not had a lasting impact on its ability to increase both revenues and usage,” eMarketer analyst Debra Williamson said via email. “Advertisers are clearly still very reliant on Facebook, and the fact that daily active usage in both the U.S. [and] Canada and Europe increased is a surprise after the flatness we saw in the U.S. and Canada last year and the falloff we saw in Europe.”
General Electric (GE) rallied 12% Thursday after the industrial conglomerate reported a fourth-quarter profit that missed expectations, but revenue and cash flow that beat.
Amazon (AMZN) fell 5.4% Friday after it reported record holiday-quarter earnings and revenue late Thursday, but offered an outlook for the current quarter that was below expectations.
Have a great week and we’ll see you back here Sunday!