By Pete Biebel, Senior Vice President

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Market action over the past several weeks has been similar to how some non-fans characterize a baseball game: extended stretches of inaction interspersed with occasional brief flashes of excitement.  Indeed, most of the recent trading sessions have been yawners.  Nearly all the action in the last two weeks came in just two days. Even the days that awoke to big volatility in the early hours usually devolved into sleepy, low-volume hours later in the session.  The weekly ranges of the major indices over the past several weeks have been narrower than most of the daily ranges through the first two months of the year.

As reported in my most recent post on 4/15/2019, Borderline Border Crossing, the S&P 500 Index (SPX) finally vaulted over the 2900 barrier on Friday 4/12.  It failed to make any significant additional progress over the next five trading sessions.  Like a baserunner at first trying to steal second, SPX made attempts to advance, but didn’t stray too far from the bag at 2900.   With the aid of a spate of positive earnings surprises, the averages finally made a break for higher ground last Tuesday.  Just as the runner in that situation heads straight for second base, once free of the gravitational pull of their big number levels, both SPX and the NASDAQ Composite Index (COMP) ran straight up to the levels of their old highs.

I’ve made a big deal out of how I expected COMP and SPX to be magnetized to their big number levels.  The market action over the past few weeks confirms that there may be some validity to that theory.  When they were finally able to break free of those levels, they shot straight up to their next magnetic levels, their old highs.  The base-stealing analogy provides an accurate image of that Point A to Point B dash, but it ignores the possibility that the market could have broken down from those big number levels.  Base runners never steal backwards.  Each successive day that COMP and SPX failed to move decisively above their big numbers increased the risk for at least a short-term pullback.  But, such a pullback was never threatened, and the Tuesday morning launch was more than enough for a break away run.

SPX’s closing high last year was just below 2931 om 9/20.  It’s intraday high was the following day just below 2941.  On Tuesday morning, SPX hit a high just above 2936 and spent nearly all of the balance of the week in a narrow range between 2925 and 2935. A last hour rally on Friday lifted SPX to a new closing high just below 2940.  COMP did a little better with respect to its old record levels.  COMP’s previous high close was near 8109 and its intraday high was near 8133.  Following its own private battle with the 8000 level, COMP shot up to the 8120s on Tuesday.  It briefly traded in the low-8150s on Thursday and ended the week at 8146.40.

As was anticipated, the large number of earnings announcements last week created skewed results in the major averages.  COMP had a net gain of nearly 2% for the week, while the Dow Jones Industrial Average (DJIA) lost a little more than 1.6%.  SPX managed a 1.2% net gain.  I’ve been watching the Russel 2000 Index of small-cap stocks (RUT) as a possible tell for the overall market.  Its performance last week was relatively disappointing.  Like its larger-cap brethren, RUT had a nice gain on Tuesday then did little to extend that gain later in the week.  Unlike COMP and SPX, RUT is still mired near its 200-day moving average and is still below its February rebound peak and is well below last summer’s highs.

The market’s rally from the December lows to the new highs on COMP and SPX last week was a pitch I didn’t see coming.  It’s as if it had been thrown by a double-jointed acrobat with a spitball.  The extremely washed-out condition at the December lows made a steep rebound rally a very strong possibility.  But, for that rally to continue unabated for another three months was highly unusual.  Contributing factors have been the declining threat of a trade war, a not-so-bad slowdown in earnings growth, a more dovish Fed and a rosier than expected economic outlook.

Still, now may not be the most appropriate time to swing for the fences.  My guess is that, at best, SPX might get up into the ballpark of the 3025 level in the coming month or two.  Adding equity exposure now risks the likelihood of having to ride out an intermediate-term timeout/pullback before the market has the potential for any significant new appreciation.

The week brings a long list of economic reports and another full slate of earnings reports.  The biggest single event of the week will likely be the Fed policy announcement on Wednesday afternoon.  These announcements have produced little surprise over the past several months.  This time around could be a little more action-packed as the exceptionally strong GDP numbers last week reintroduced the possibility of a rate hike later this year.

Date Report Previous Consensus
Monday 4/29/2019 Personal Income and Outlays, Income, M/M +0.2%  +0.3%
Personal Income and Outlays, Spending, M/M  +0.1%  +0.3%
Dallas Fed Manufacturing Survey 8.3 9.8
Tuesday 4/30/2019 S&P Case-Shiller Home Price Index, M/M +0.1%  +0.3%
Chicago PMI 58.7  59.0
Consumer Confidence 124.1 126.0
Pending Home Sales Index, M/M -1.0% +0.6%
Wednesday 5/1/2019 ADP Employment Report +129K +1801K
PMI Manufacturing Index 52.4
ISM Manufacturing Index 55.3 55.0
Construction Spending, M/M +1.0% +0.2%
FOMC Meeting Announcement and Press Conference
Thursday 5/2/2019 Initial Unemployment Claims 230K 220K
Productivity and Costs, Non-Farm Productivity, Q/Q, SAAR +1.9%  +1.5%
Productivity and Costs, Unit Labor Costs, Q/Q, SAAR +2.0% +2.1%
Factory Orders, M/M -0.5%  +1.4%
Friday 5/3/2019 Employment Situation, Non-Farm Payrolls +196K  +185K
Unemployment Rate 3.8% 3.8%
International Trade in Goods, Trade Deficit -72.0B $74.5B
ISM Non-Manufacturing Index 56.1  57.2


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