US financial markets continued their rebound during the President’s Day shortened trading week ended Friday the 22nd. The S&P500 added another +0.7% and international markets also responded with the MSCI EAFE improving by +1.6% (now up +9% YTD). Whereas January was fueled by a softer, more comforting tone by the US Federal Reserve and other foreign central banks, progress in February is being supported by increasing optimism over a trade/tariff resolution being finalized between the US and China. On that front, talks continue to carry a deal-seeking tone; a stark contrast from the war of words and relentless lobbing of verbal grenades that characterized 2018.
Major US indexes added to already impressive gains last week with the Dow, S&P500 and Nasdaq each adding between +2.4% – 3.0%. Just eight trading weeks into the new year, the Dow and S&P500 are up roughly +11% from where they entered; and higher-beta corners of the market (such as small-caps and cyclical transportation stocks) are enjoying even stronger recoveries in the neighborhood of +15%. The numbers are even more impressive if one begins their count from the Christmas Eve low. Interestingly, as equities have improved back to, and even through, the most obvious levels of technical resistance the pace does not seem to be slowing despite what remains a quite lengthy list of items that need to “go right” for the US economy to manage a soft economic landing.
Thank the Fed for the surge! The S&P500 posted its best January performance in 30 years (since 1989). Following a nasty 4th quarter and very difficult December which ruined the year, the Fed offered numerous reassurances in January that it was not inclined to make a policy error. Fed Chairman Powell shared that policy action would be more data dependent; rate increases and tightening monetary policy would not be on “auto pilot” in 2019; this was a stark difference from the tone conveyed in December. We believe January market action was mostly a reaction to a pause in rate hikes. It provided tremendous “fuel” for the strong rebound of +8.0% in the last month. Hey, that’s a bit stronger than the January 2018 performance start of +5.6%. Yet, there is one notable difference…last January, 51% of investors expected higher stock prices which did not materialize for the year; today, only 31% expect higher prices. Domestic and foreign stocks rebounded, and client portfolios benefited from the market boost in January (note the difference a month makes).