The blistering start to 2019 continued this past week, as 3 days of consolidation led to a decent rally Friday. The NASDAQ had been up 8 sessions in a row until a small retreat Thursday. Volatility has fallen off dramatically and bears have been on the run for weeks on end as the Federal Reserve has no “patience” for them. This is the 9th straight up week for the NASDAQ and Dow Jones (the S&P 500 suffered a small loss one week but essentially is in the same zip code).
2019 is the best start for the S&P 500 and Dow Jones since 1987, measuring the first 36 trading sessions for those indexes at the beginning of a calendar year. Over that period, the Dow has rallied 11.6%, and the S&P 500 has risen 11.4%.
No real heavy news flow – the same optimism of a trade deal with China that reigned the prior week also was the context for any rallies this week.
U.S. and Chinese negotiators have started to iron out specific details of a possible trade deal, Reuters reported, citing sources it called familiar with the talks. The report said agreements in principle are being drawn up in six key areas: forced technology transfers and cyber theft, intellectual-property rights, services, currency, agriculture and nontariff barriers to trade.
The transcript of the Federal Open Market Committee’s meeting in January indicated that officials were divided between those who believed that rate increases might be needed only if inflation accelerated beyond their baseline forecast and those who argued that tighter policy is necessary if the economy evolves as expected. As far as the balance sheet, “almost all” participants wanted to stop reducing the balance sheet later this year as they mostly agreed to reinvest mortgage-backed securities into Treasurys once the runoff stops. Officials said they thought being patient posed “few risks at this point.”
The next move is a rate cut not a rate hike?!
“The bar to restarting rate hikes in the near-term seems to be quite high, with several participants arguing that rate increases would be necessary ‘only if inflation outcomes were higher than in [the] baseline outlook.’ The upshot is we now expect the Fed to leave rates unchanged throughout this year, before a further deterioration in economic growth forces it to cut rates by a total of 75 basis points in 2020,” said Paul Ashworth, chief U.S. economist at Capital Economics, in a note.
Existing home sales fell 1.2% in January to a seasonally adjusted annual rate of 4.94 million homes, the National Association of Realtors. It marks the third straight month of declines.
For the week the S&P 500 gained 0.6% and the NASDAQ 0.7%.
Here is the 5 day weekly “intraday” chart of the S&P 500 … via Jill Mislinski.
The week ahead…
Federal Reserve Chairman Jerome Powell’s two days of testimony on Congress starting Tuesday likely will be among the highlights of next week’s action. (patience) More chatter about the China-U.S. trade deal which the markets now seem to have baked in.
Short term: the NASDAQ has now joined the S&P 500 over its 200 day moving average. We will see if the lower 2800s provides any resistance to the S&P 500 this week.
The Russell 2000 has joined the NASDAQ above the 200 day moving average but just barely.
The NYSE McClellan Oscillator is now just at a healthy positive level after quite a few weeks of massively overbought and very rare levels.
Long term: The S&P is now over our very long term weekly trend line connecting major lows of the last 2 years.
Charts of interest / Big Movers:
Tuesday, Walmart (WMT) climbed 2.2% after the retailer reported fourth-quarter earnings and revenues that surpassed Wall Street expectations, while raising its annual dividend by 2%.
Wednesday, CVS Health (CVS) sank 8.1% after the health-care retailer reported fourth-quarter earnings and revenue that fell short of Wall Street expectations.
Southwest Airlines (LUV) declined 5.7% Wednesday after the company said that the government shutdown had reduced revenue more than expected, lowering its first-quarter outlook.
Garmin (GRMN) rallied 17% after the firm reported fourth-quarter earnings and revenue that surpassed expectations, while increasing its dividend.
Thursday, Avis Budget (CAR) rallied 17% after the company reported fourth-quarter financial results that showed the car-rental company outpacing expectations.
Domino’s Pizza (DPZ) skidded 9.2% Thursday after the company reported fourth-quarter earnings, revenue and same-store sales that fell short of Wall Street expectations.
Wow, Kraft Heinz (KHC) tumbled 28% Friday after the food company reported weaker-than-expected fourth-quarter results, slashed its dividend and revealed an accounting investigation that resulted in a subpoena from the Securities and Exchange Commission.
Also Friday, Wayfair (W) rallied 28% after the online home furnishings retailer reported fourth-quarter losses that were smaller than expected, while beating analysts revenue forecasts.
Stamps.com (STMP) cratered 58% after the company announced the end of its exclusive partnership with the U.S. Postal Service. Management said that ending the deal was part of an effort to work with other shipping providers, but would lead to a sharp drop in earnings in 2019.
Roku (ROKU) jumped 25% Friday after the company announced better-than-expected fourth quarter earnings and revenue.
Have a great week and we’ll see you back here Sunday!