The 1st Quarter concluded with each month firmly in positive territory and a cumulative advance for the S&P500 of +13.6% – a sharp reversal from the experience suffered closing out 2018. Interesting fact: since 1950 there are only 19 examples of the S&P500 starting a year with positive performance in January, February, and March and returns over the following 9 months historically came in above average (though mid-year corrections were just as likely). The early year improvement has been most attributed to a decidedly more deal-seeking tone on the issue of US-China trade and a US Federal Reserve that now appears firmly on break from any additional interest rate hikes or incrementally tighter monetary policies. While those developments are welcomed, the forward-looking message to be gleaned is far less clear. In recent weeks for instance, smaller-size companies along with transportation and industrial sectors have been laggards. Too, it is widely expected that the US economy has entered a decidedly more sluggish period of economic growth and safe-haven bond yields have drifted lower; a condition usually accompanied by a risk-off mood and caution.
Category Archives: Blog Post
Bull’s 10th Birthday Brings Little Fanfare – Week Ended 3/8/19
It was just the 2nd down-week of the year, but below the surface many individual names have been consolidating since mid-February. The S&P500 gave back -2.1%, but the more cyclical and strongest YTD performing areas are pulling back more sharply with transportation stocks down -3.3% and small-caps off -4.3% (Russell 2000). This weakness should embolden the somewhat consensus call that that the rally since the Christmas eve low was too strong for such a short-period of time and without any retesting.
As Markets Continue Rebound, Investors Should Remain Focused on Risks – Week Ended 2/22/19
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.
Impressive Recovery Continues, But Time for the Rally to Fade? – Week Ended 2/15/19
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.
Government Re-opens; But Busy Week Ahead – Market Notes for Week Ended 1/25/19
After an impressive 4-week rally, US equities appear to be butting up against arguably their first formal area of technical resistance being near the 200-day moving average. The broad-based strength that began the day after Christmas is in recent days turning decidedly more sideways; for the week ending January 25 the Dow managed to finish slightly higher and extend its weekly winning streak to 5, but the S&P500 (considered to be broader and more representative of the overall market) slipped slightly.
As Both Conclude Week 4, Stock Market Rally and Gov’t Shutdown Continue – Week Ended 1/18/19
US equities capped a 4th consecutive week of gains, bringing US equities back roughly +13% thru this past Friday from its Christmas-eve lows. As one might anticipate, the markets are also off to an extraordinarily strong New Year start with the S&P500 up +6.6%; encouraging, more economically sensitive areas of the market like small-size companies are faring even stronger over that period with gains of roughly +10% (Russell 2000). Most of that strength is being attributed to a more collaborative narrative surrounding trade negotiations between the US and China, as well as a more data-dependent and cautious Federal Reserve as it relates to normalization of monetary policy. The only missing element of full improvement from a domestic policy perspective at this point is that the US government remains partially shut down and there is little sign of either side appearing willing or desirous of reaching compromise. In any event, the stock market’s strong rebound serves valid reminder of how quick and suddenly direction can reverse course in financial markets, even as worries are not fully resolved.
Government Dysfunction and Uncertainty Remains, but Tone Improved In Early-’19 – Week Ended 1/11/19
Following the worst performance for the S&P500 since 1931, the tone so far in these early weeks of 2019 is more hopeful. This is evidenced by broad and strong consecutive-day winning streaks; the S&P for instance was up +2.6% last week and +3.6% month-to-date. Even stronger are some areas of the market traditionally considered risk-seeking; the small-cap Russell 2000 climbed +4.8% last week and +7.4% in January. Key commodities viewed as a bellwether to economic growth including oil are also seeing their price recover notably off stressed December lows and international equities are participating in-line with the S&P. The cause? From a fundamental perspective, very little. But Fedspeak turned decidedly more dovish from the worrisome pre-disposed and not-so-data-dependent (toward additional hikes) tone that Chairman Powell conveyed with the rate decision in December.
Market Alert – “The Politics That Stole Christmas”
Uncle Sam stole the year-end Santa rally. The worst December since 1931 and the worst Christmas Eve stock market performance of all time occurred this year. From my perspective, it is all politics this December. Yes, our great Uncle Sam “Scrooge” stole Christmas and a small positive investment performance for 2018. It traces to bad politics coming together in a “perfect storm.” A “perfect political storm” is the coming together of at least 2 bad events at the same time. We count at least 3 negative political charges right now: the Fed, Tariffs, and government shutdown (budget).
Government and Markets Woefully Out of Sync; Santa Nowhere to be Found – Week Ended 12/21/18
With just 5 trading days remaining in 2018, Santa is missing, failing to deliver any holiday cheer more familiar to investors at this time of year. Even a lump of coal might feel better at this point. Instead, the ill-behavior of financial markets would suggest that something very bad is happening to the global economy. On the heels of a -1.2% slide during the week ended December 14, the selloff intensified with the S&P tumbling another –7.0% for the week. It was the worst week for US equities in 10 years, and stocks are now off more than -12% for the month. Smaller-size US companies are generally faring even worse with the Russell 2000 small-cap index down -15% for the month and crossed the bear market threshold of -20% from its peak. The tech-heavy Nasdaq is also officially closed in bear territory on Friday (12/21) from its peak after leading the charge throughout most of the last two years. But regardless of size, US stocks are decidedly negative for 2018 to varying degrees.
Market Alert – “Short Runway”
Barron’s front cover over the weekend (12/15/2018) read “2019 Outlook: US Stocks Could Rally More Than 10%”; while the New York Times front page (12/15/2018) was “The Best Place to Put Money? Your Mattress” and in the Style Section (same paper/date) read “Are You Ready for the Financial Crisis of 2019?” Quite divergent headlines on the same day.