Looks like the Thanksgiving week rally missed it’s usual target by a week! Optimism of a trade war halt with China carried markets up through the week and as of Sunday evening futures were surging once more as a 90 day stay of execution on the next round of tariffs was agreed to. Giant rallies Monday and Wednesday – with a huge surge mid day intraday Wednesday – helped rocket the indexes to spectacular gains.
Federal Reserve Chairman Jerome Powell spoke Wednesday and his comments on interest rates were considered quite dovish. This led to the largest gain in the S&P 500 since March 26th! While it has not been so pronounced the last year or two – over the past decade whenever the market dare sell off – the Federal Reserve always has come to the rescue with words or actions!
“Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy — that is, neither speeding up nor slowing down growth,” said Powell during a speech at the Economic Club of New York. The comments were viewed by investors as a retreat from his stance in early October when he had said that the central bank “may go past neutral, but we’re a long way from neutral at this point, probably.”
Jamie Cox, managing partner for Harris Financial Group, said Powell did exactly what he needed to do. “He calmed the nerves of investors worried about policy overshoot and retained all the flexibility [he] had before he started talking,” he said.
“As is typical with this market, the Fed chair gave an inch and the market took a yard,” wrote Mike O’Rourke, chief market strategist at JonesTrading.
Trading in fed funds futures imply an 83% chance of a hike in December, but just one more hike in 2019. The Fed’s dot plot implies three interest rate hikes in 2019.
More Federal Reserve as the minutes of the prior meeting were released:
The Fed minutes from the central bank’s November meeting showed that almost every member of the Federal Open Market Committee felt comfortable with raising interest rates “fairly soon” as long as job market and inflation data were in line with expectations, bolstering expectations of another rate hike in December. However, they did note that “monetary policy was not on a preset course,” reiterating the need to be flexible about monetary policy in 2019.
This ended up being the best week since December 2011 for the S&P 500 (+4.9%) and NASDAQ (+5.6%).
The only major economic reports of note came Thursday as the Commerce Department reported that consumer spending in October rose by 0.6%, while income rose by 0.5%
Here is the 5 day weekly “intraday” chart of the S&P 500 … via Jill Mislinski.
The week ahead…
Markets will be closed Wednesday in observance of the passing of President Bush. Powell will be back on Capital Hill
cheerleading the markets upward…. err, discussing economic policy. Key economic data throughout the week with the two ISM reports and employment data Friday.
As for the indexes, we have a surge coming Monday and then we will see what happens. Often the most violent moves up are within downtrends. So we’ll know in the next few weeks if *THAT* was the bottom, or if this is just one of the massive oversold rallies. Bears have been unable to stop bulls for years so if it’s the latter it will be a change in character for sure. Lots of technical damage still needs to be repaired. Also note WHERE the rallying is happening – in more defensive nature sectors:
“We’ve seen a shift in leadership from the high-growth stocks to the more high-quality value stocks,” Michael Arone, chief investment strategist at State Street Global Advisors. “In 70% of the trading days in November, value stocks beat growth stocks,” he said, adding that this is indicative of investors’ newfound preference for company’s with low earnings volatility.
Short term: The S&P 500 rallies exactly to our trend line! The rally in futures Monday signal we’ll see a jump above that level shortly. The NASDAQ even with a huge 5% move still looks like a weak chart. We’ll talk more about that index in the 5 year chart.
The Russell 2000 still looks putrid.
The NYSE McClellan Oscillator is positive but again it’s a bit more difficult to trust it when charts are weak.
Long term: The NASDAQ is the chart that interests me as it has such a well defined channel. So it appears 7500 is a good number to watch as a rally up and through that level would signal the index getting back in a channel it has been in for years!
Charts of interest / Big Movers:
Wednesday, Tiffany & Co (TIF) sunk 12% after the firm announced same-store sales that fell short of Wall Street expectations.
Amazon rallied strongly both Monday and Wednesday (Monday due to Cyber Monday!) – Fun fact – the firm announced that Cyber Monday was its biggest single-day of sales in the company’s history. According to Rakuten Intelligence data, Amazon has secured 24% of total online holiday sales!
Wayfair (W) surged 15% Wednesday after the online furniture and home goods retailer reported a 58% increase in direct retail sales over the peak five-day holiday shopping weekend.
Not such a great story over at Chicos FAS (CHS) as it tumbled 35% after the women’s apparel and accessories retailer reported a fiscal third-quarter profit that missed expectations as well as a steep decline in sales.
Thursday, Abercrombie & Fitch (ANF) surged 21% after the clothing company beat earnings and sales estimates by wide margins.
Friday, Workday (WDAY) rallied 13% following a third-quarter earnings report that beat Wall Street expectations.
Have a great week and we’ll see you back here Sunday!