Heading into the final two weeks of 2019, the S&P 500 had soared 28.5 percent, while a bond rally has pushed the yield on 10-year Treasury notes down more than three quarters of a percent. If such gains continue through New Years, it will mark the first time since 1998 when stocks have jumped by at least 20 percent while Treasury yields declined by an equal amount.
More importantly, The Santa Claus Rally has achieved lift off.
At this point, even the skeptical money has begun to find its way into the market. Especially as investors become unnerved by FOMO (fear of missing out), a psychological tendency that impacts human cognition when inundated with the idea of missing out on some positive occurrence or event. Three months ago, these same investors wanted nothing to do with equities. But, tidal flows change quickly. And who can blame them?
We have a strong economy. GDP rose by 2.1 percent in Q3, in line with the consensus and matching the prior quarter. We have the lowest unemployment rate in 50 years. Rising wages. Consumer spending. These represent the kind of fundamentals that should keep the bulls running into next year.
Accordingly, $43 billion has flown into equity funds the last six months, the best capital flows since March 2018. Confidence fueled by an improving global trade outlook and belief in the prospects for global growth.
Which explains why the S&P 500 recently crested above 3,200 for the first time.
Stocks extended their winning streak last week. As the Dow has risen four weeks in a row, the S&P has been higher six weeks in a row, and the Nasdaq has been up seven weeks in a row.
YTD, the Dow began the week up 20.1 percent, the S&P is up 24.5 percent, and the Nasdaq is up 28.7 percent. All occupy new all-time highs. And 2019 still has a month and a half remaining.
Many investors expect to see a powerful Santa Clause (year-end) rally. Especially given the strength of the economy and record low unemployment. Moreover, traders expect the U.S. and China to formalize and sign a phase one trade agreement within the next few weeks. And for the House to pass the USMCA deal by year end, after which it should quickly sail through the Senate.
All of which leaves 2019 looking like a truffle digger’s average day… Investors find themselves in a pretty good place. But they dug through a lot of shit to get there.
2019 marks an historic time for the economy and for markets. Both continue to set record after record. Some market observers believe that a “melt-up” is in play. Whereby stock trajectories go parabolic towards the end of a bull market in one last gasping, quantum leap higher. Consider 1999. A year in which the Nasdaq index rocketed 100 percent higher. Yet, even amid that big move higher, the index incurred five violent pullbacks of roughly 10 percent or more.
Last week saw markets continuing to respond to headlines like Pavlov’s Dog did the dinner bell. Take last Friday’s news that the U.S. could de-list Chinese companies from U.S. exchanges. Equities went from positive territory into a steep, downward slide.
Earlier in the week, impeachment talk had sent investors scurrying like rats from a sinking ship. Until they realized that Republicans still control the Senate. Which likely renders any such proceedings more Kabuki Theater than serious political drama. With less attention being paid to potential outcomes than on the circus leading up to it.
Still, September’s ferocious reputation as the “Year’s Worst Month for Stocks!” proved rather benign. The S&P 500 finished two percent higher. And most indices re-established the upward trendlines in place prior to July’s declines.
Broader market indices drifted lower last week. Though it could have been worse. Following the previous Thursday’s move higher, the market plummeted four percent. Falling Friday through Wednesday. Only to claw back two percent of those loses last Thursday and Friday.
Why the quantum leap in volatility?
The dreaded yield-curve inversion broke the water’s surface. Leaping and twisting like a crazed, sun-drenched marlin that can’t take enough line. And when the lethargic anglers on the boat’s stern caught sight of such an oft-discussed yet rarely seen apparition, their collective yawl was enough to alert those half a sea away.
After years of inversion-related banter, yields on the 10-year Treasury fell below two-year yields for the first time since 2007. The yield curve typically inverts because investors feel better about long-term economic prospects than those in the immediate future. Rendering them willing to accept a lower rate of interest to park capital well into the future, or further out on the yield curve.
These last two weeks saw stocks storm the castle ramparts. Elude the archers. Scale the walls and wrest control from the bears. By week’s end, former record highs were conquered. With bulls establishing camp upon the newly taken plateaus of all-time highs. As equities forged ahead. Endeavoring to unite all asset classes and establish peace throughout the Seven Kingdoms.
Or, I just need a break from Game of Thrones.
Last week, the Nasdaq and S&P 500 added 0.22 percent and 0.20 percent last week, respectively. The Dow fell 0.14 percent. Financials’ 1.34 percent climb and Health Care’s 1.29 percent gain led all sectors. Internationally, Developed Markets jumped 0.81 percent while Emerging Markets slid 0.34 percent. Small Caps were up on the week as the Russell 2000 gained 0.98 percent. Kinda nice when you pull most of your revenue from the world’s best economy (domestic) as the Smalls typically do. The S&P 500 and Nasdaq sit within a whisper of record highs. The Dow is sitting 1.2 percent from its record level. Continue reading
Yin and yang. All things serving as inseparable and contradictory opposites. Preserving the greater balance of the universe and symmetry in all things. Male and female. Dark and light. Old and Young. Q4 2018 and Q1 2019.
The last six months have represented an extraordinary cycle. A really bad quarter (Q4 ) followed by a really good quarter (Q1). Three other similar cycles have occurred since the financial crisis ended in 2009. In each case, the following quarter was also positive and better than average.
Especially positive given that the S&P 500 sits a mere one percent below last year’s all-time high.
Earnings season truly kicked off last week. JP Morgan, PNC, and Wells Fargo reported Friday. Citi and Goldman reported Monday. With the pace picking up this week. A slew of positive reports from the likes of UnitedHealth Group, BlackRock and Bank of America, among others, has elevated stock prices. Continue reading
Like a teenager’s allowance, Q1 came and went. What a quarter it was! Following Q4’s equity rout during which the S&P 500 lost 16 percent, Q1 calmed an angst-ridden global investment community. Turning in the best Q1 stock-market performance in a decade.
Equities were revivified by signs that inflationary pressures remained contained. Because lower inflation allows for higher PE multiples. And keeps the Fed at bay. Grounding two birds with one bullish stone. Allowing stocks to rebound from the losses suffered in the final months of 2018.
Moreover, despite downbeat Q1 earnings projections, investors have grown increasingly optimistic following the Fed’s cautious shift. After pulling money from U.S. stock mutual and exchange-traded funds at the start of the year, more than $25 billion flowed back in during the week ended March 13, the largest weekly inflow in a year.
The S&P 500 rose 0.62 percent over last week’s holiday-shortened trading week. Aside from biotech and energy, everything ended higher. Utilities, precious metals, small and mid-caps led the way. The S&P 500 has risen 11.4 percent for the year. Among its better starts in decades. Meanwhile, the DJIA notched its ninth-straight weekly gain. Returning 16 percent over that span.
Positively, the advance has been global.
The Shanghai composite index scored its seventh-straight weekly gain. Having climbed 12.4 percent. Japan’s Nikkei has posted six positive weeks over the last seven. 12 percent above its December low. And European stocks have been higher seven of the past eight weeks. Elevating 12.6 percent since December 27th.