After slapping bulls all over the place in 2017, bulls decided to begin 2018 with… the same prescription. Four days of rip roaring gains after a holiday Monday. At this pace the market will go up every day in 2018! For the week the S&P 500 gained 2.6%, while the Nasdaq was up 3.4%. The DJIA closed at a record on the first four trading days of the new year, the first time it has done so since 1964.
Optimism over U.S. markets has been rising despite valuations that are seen as stretched by many measures. The latest AAII investor sentiment survey indicates that 50.5% of polled investors are bullish on the market, meaning they expect prices will be higher in six months. That’s the highest level in nearly two years, and significantly above the 38.5% historical average.
The Federal Reserve minutes released Wednesday offered nothing new of value.
The Federal Reserve in December forecast three rate hikes in 2018, but minutes showed that policymakers were divided about the pace of rate increases.
Some thought three hikes were too aggressive and that they would tighten monetary conditions too soon. Meanwhile, others thought the pace of rate hikes was too slow. The market is pricing in the first rate hike of 2018 at the March meeting.
Wednesday’s ISM Manufacturing release for December showed a jump to 59.7 from 58.2 in November. The monthly jobs data was weaker than expected but no one really cares at this point. One could even construe it as “good” as it keeps the Fed at bay.
The economy created 148,000 jobs after averaging gains of 232,000 in the prior two months. Economists had predicted a 198,000 increase in nonfarm jobs. The unemployment rate, meanwhile, remained steady at 4.1%.
The mediocre increase in new jobs in December stemmed almost entirely from a surprising 20,000 decline in retail employment that does not appear to jibe with strong holiday sales even for many traditional brick-and-mortar stores. “That’s hard to swallow and suggests that there must be something odd in the seasonal adjustment,” said Douglas Holtz-Eakin, president of the American Action Forum.
Bitcoin rallied this week as well despite a moderate fall Friday. Maybe Ripple is the new Bitcoin for 2018 as it has a cool name so thus must be valuable – it rallied 39% Thursday. Why? Don’t ask questions like that.
Here is the 5 day weekly “intraday” chart of the S&P 500 …via Jill Mislinski.
Every year Byron Wein puts out a list of 10 surprises for the upcoming year – it’s good ahead of bedtime reading if nothing else..
The week ahead…
Retail sales will be reported Friday, lots of Fed talk and questions will abound if the market will ever go down 1 day in 2018! Also let’s see what cryptocurrency surges next week. Earnings season is around the corner as well.
Short term: The S&P 500 and NASDAQ were nowhere near even their 20 day moving average to end the prior week so it was a good week to consolidate some gains.
The Russell 2000 interestingly was much more quiet – many assumed the tax reform would be catering to domestic type of companies but based on the relative returns of indexes it appears mega internationals got more of the goodies. No surprise there.
The NYSE McClellan Oscillator readings improved obviously.
Long term: Unicorns and rainbows continue – now in extreme fashion.
Charts of interest / Big Movers:
Friday, Kala Pharma (KALA) tumbled nearly 30% in heavy trading after it released results from two late-stage trials for its dry eye therapy KPI-121.
Look at those emerging markets go…
Transports also surging.
Have a great week and we’ll see you back here Sunday!