It was another volatile week with big swings especially Thursday and Friday but the new Federal Reserve Chairman finally bowed to pressure from the investor class and went very DOVISH in comments Friday, stoking the type of rallies we’ve seen for decades now on the back of words by Greenspan, Bernanke, Yellen, et al. Ironically the guy was sitting next to Yellen and Bernanke while making these comments…
“We don’t believe that our issuance is an important part of the story of the market turbulence that began in the fourth quarter of last year. But, I’ll say again, if we reached a different conclusion, we wouldn’t hesitate to make a change,” Powell said. “If we came to the view that the balance sheet normalization plan — or any other aspect of normalization — was part of the problem, we wouldn’t hesitate to make a change.”
Thursday’s swoon was due to guidance by Apple (AAPL) as the company’s words signaled the fear of many market watchers about a global slowdown, especially in China. This led to the worst day for Apple since 2013.
Before we move on to the week, taking a moment to assess 2018 the returns were -6.2% for the S&P 500 and -3.9% for the NASDAQ.
A very interesting statistic: 2018 was the first year since 1948 (!!) that the S&P 500 finished negative after finishing up in each of the first 3 quarters. For the NASDAQ it was the first time since 1987 (which was a bloody October).
In economic news ISM manufacturing tumbled dramatically from a reading of 59.3 in November to 54.1 in December. Wow. Any reading over 50 still signals expansion but that’s quite a haircut in 30 days. Expectations were for a reading of 57.0.
On a brighter front, although it’s usually a lagging indicator when the economy turns – the government reported job gains of 312,000 well in advance of expectations of 182,000. The unemployment rate did rise 0.2% but that was mostly due to new entrants to the job market which is a positive.
“The U.S. economy will eventually fall into recession, maybe as soon as next year, but the December employment report indicates that this isn’t going to happen anytime soon,” said David Berson, chief economist at Nationwide Insurance.
For the holiday shortened week the S&P 500 gained 1.9% and the NASDAQ 2.3%.
We posted this chart last week – art the time 10 year yields were back to lows last seen in spring. They plunged through them this past week!
Interesting rally in precious metals the past month….
Here is the 5 day weekly “intraday” chart of the S&P 500 … via Jill Mislinski.
The week ahead…
Well – it’s pretty simply. Has the Fed solved all the market’s problems in 1 speech!
Short term: Last week we wrote: “We were very oversold and still remain reasonably so. Any further rally could certainly take these indexes at least up to their 20 day moving averages – which are still quite a ways away.”
Well look exactly where the S&P 500 rallied to Friday! That happens to also perfectly coincide with the lows of the year (made in early 2018) before this selloff which we denoted in the dotted line. That low was a prior support and sometimes support turns into resistance on the way up. But we shall see – it all depends on how drunk investors get on “the Fed will save us” drink. The NASDAQ did finish above those February 2018 lows.
The Russell 2000 is back a tad over its 20 day moving average.
Exemplifying the massive volatility we moved from one of the most oversold moments of the past year two weeks ago to the most overbought moment Friday, based on the the NYSE McClellan Oscillator.
Long term: A lot of damage to fix on the long term charts.
Charts of interest / Big Movers:
Tesla (TSLA) sank 6.8% Wednesday after the electric-car manufacturer announced fourth-quarter deliveries below analysts expectations, while also saying that it would cut the price of its Model S, Model X and Model 3 by $2,000.
Massive deal in the health sector as Bristol Myers Squibb (BMY) fell 13% Thursday after the firm announced a $74 billion cash-and-stock acquisition of Celgene (CELG). Celgene shares were up 21%.
Netflix (NFLX) closed up 9.1% Friday, after Goldman Sachs added the stock to its conviction list and said a 36% pullback since July presents an attractive buying opportunity.
Have a great week and we’ll see you back here Sunday!