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By Pete Biebel, Senior Vice President

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I got a great time-saving idea late last week from an article by Jason Gay, a Wall Street Journal columnist.  I simply need to create a smart key on my computer that, with one key stroke, instantly types out, “The major averages all hit new highs again last week.”  I hit one key instead of about fifty!  My typing proficiency is demonstrably substandard; I need all the help I can get.  Just imagine the amount of time I could save in writing these weekly commentaries.  Just in the coming year alone, it could mean saving hours; I could take up a new hobby, or watch “The Irishman.”

The major averages all hit new highs again last week.  In fact, as was the case in the prior week, and the week before that, and the week before that, they hit new highs a couple times each week.  In just the past several weeks, the smart key would have saved enough time that I could stay under the speed limit on my way to work.  Just kidding!

But, it wouldn’t stop there.  I could also create smart keys for phrases like, “The market is very extended short-term, so significant additional upside is unlikely over the near-term,” and “While upward momentum is strong, this is probably not a good time to be buying aggressively.”  Both, of course, appeared to be true for the past couple weeks and seem even more appropriate following last week’s gains.  I was writing those same phrases two years ago following a year-long rally that ended in a steep rush higher into January 2018.  The uber exuberance back then faded quickly when three months of gains were erased over the next two weeks.  There’s no reason to expect that sort of reversal this time around, but the market’s extended condition suggests that some sort of timeout from the rally is likely in the coming weeks.

For the week, the NASDAQ Composite Index (COMP) left the other majors in the dust with a gain of 1.75%.  The Dow Jones Industrial Average (DJIA) and the S&P 500 Index (SPX), after suffering minor net losses in the previous week, returned to their winning ways.  SPX tacked on nearly a full percent and DJIA had a net gain of about two-thirds of a percent.

Ooh!  Here’s another one: “Last week, the market shrugged off the threat of increasing geopolitical tension.”  How many times have I hunted and pecked that little ditty in the past few years?  Or how about, “Investor optimism increased on headlines and tweets hinting at progress in trade talks with China.”?  Just a handful of key strokes and the article would be half completed.  I might save so much extra time that I could write dictate a novel.

Both those statements, of course, were true again last week, though, for a change, the geopolitics trumped the trade talks.  Threats of retaliation and re-retaliation regarding the airstrike assault in Baghdad the previous Friday contributed to a gap-down opening on Monday, but that Monday opening turned out to be the low of the week.  As the U.S. and Iran turned down the heat in their respective threats, the built-up pressure dissipated, and stocks quickly resumed their march to new highs.

One disappointing aspect of last week’s gain was Friday’s market action.  The three major indices all hit new highs that morning but reversed and trended lower for the balance of the session, ending the day with losses.  The most troubling part of that was that both DJIA and SPX traded below the lows of the previous day.  That, in itself, isn’t a negative, but for it to occur on a day that the indices hit new highs may be a sign of near-term exhaustion.

Communication Services, Technology and Healthcare led the U.S. equity sectors with gains of about 2% for the week.  Those three along with Consumer Discretionary and Industrials all hit new highs during the week.  As was often the case last year, the Energy sector was the laggard on the week, declining almost 1%.

Last week’s gain lifted SPX to just above 3265.  I continue to believe that SPX is likely to spend most of first quarter of the year in the 3100 – 3300 range even though the index is already within about 1% of the top of that range.

This week brings a long list of economic reports.  The inflation numbers on Tuesday and Wednesday along with the unemployment data on Thursday are likely to be the key reports of the week.  The release of the Fed Beige Book midweek will likely be the subject of much discussion but little market reaction.  The new Earnings Season gets underway this week; reports from banks large, medium and small will be most prominent in this first week of the season.

One potential wrench in the works is the scheduled signing of the initial agreement, Phase One, of the trade negotiations with China on Wednesday.  If all goes as planned, the market really has nothing new to celebrate.  However, any surprise disruption in that process might compel traders to quickly unwind some of the trade optimism that has been priced into the market.

Date Report Previous Consensus
Tuesday 1/14/2020 NFIB Small Business Optimism 104.7 104.8
  Consumer Price Index, M/M +0.3% +0.3%
  Consumer Price Index, ex-Food & Energy, M/M +.02% +0.2%
Wednesday 1/15/2020 Producer Price Index, M/M 0.0% +0.2%
  Producer Price Index, ex-Food & Energy, M/M -0.2% +0.2%
  Empire State Manufacturing Index +3.5 +3.6
  FOMC Beige Book    
Thursday 1/16/2020 Initial Jobless Claims 214K  217K
  Retail Sales, M/M +0.2% +0.3%
  Retail Sales, ex Autos & Gas, M/M 0.0% +0.4%
  Philadelphia Fed Manufacturing Index +2.4 +3.1
  Import Price Index, M/M +0.2% +0.4%
  Business Inventories, M/M +0.2% -0.1%
  NAHB Housing Market Index 76 74
Friday 1/17/2020 Housing Starts, M/M +3.2% +1.1%
  Industrial Production, M/M +1.1% -0.1%
  University of Michigan Consumer Sentiment 99.3 99.3
  JOLTS Job Openings 7.267mm 7.267mm


Links to previously published commentaries can be found at Our Clients/Educational Resources/Market.

January 13, 2020 |