Courtesy of Blain.
The week that was…
While it is never always positive, it does “feel” like Thanksgiving week is often quite bullish for stocks. Light volume, generally positive feelings of the holiday, mild meltups often seem to happen in years not called 2008 or 2000. This year we had the added bonus of a break to the upside preceding this past week and the NYSE McClellan Oscillator finally giving us a buy signal, so true to form it was generally a solid week with a nice start Monday and a nice close Friday sandwiching two very quiet days. We continue to see a lot of nice moves in “growth sectors” vs defensive sectors. For the week the NASDAQ rose 1.5%, while the S&P gained 1.4%. The Russell climbed 2.3%.
“The post election narrative is still in place, with investors continuing to focus on fiscal policy and regulatory easing. That’s giving the market reason to be optimistic, and it means that the path of least resistance is higher for now,” said Aaron Clark, a portfolio manager at GW&K Investment Management, which has $33 billion in assets under management. Despite that, Clark added that “I’m surprised by how quickly markets have priced in the positive impact of the election, as though changes to taxes and regulation can be done with the snap of a finger. I don’t think we’ve overshot on the upside, but we could see buyer’s remorse if the market starts to think it is ignoring risk.”
A Federal Reserve rate hike in December is now built into this market and the minutes released Wednesday did nothing to dissuade that line of thought. The Fed minutes showed that policy makers agreed an interest-rate increase may be appropriate relatively soon.
Economic news was sparse with the highlight being Wednesday’s durable goods # which surged 4.8% in October, in large part due to strong demand for commercial aircraft.
Fun fact: Online shopping on Thanksgiving Day itself delivered $1.15 billion in sales, an increase of 13.6% over last year, according to Adobe Systems. Of that revenue, $449 million came via a mobile devices — 58.6% more than last year.
Here is a 5 day “intraday” chart of the S&P 500 via Doug Short.
We have discussed the “great rotation” among sectors the past 2 market recaps; here is a similar but extended view from Fidelity – a good read!
The week ahead…
More of the heavy hitter economic data hits this coming week. Third quarter GDP will be released Tuesday with expectations of 3.1% growth. ISM manufacturing will be released Wednesday with expectations of a rise to 52.2 vs 51.9. Any reading over 50 is considered expansionary. Friday comes employment data for November with expectations of 180,000 jobs created and a 4.9% unemployment rate.
Outside of that there is just more of the same as the Federal Reserve seems to be in place for a rate hike in a few weeks, and the “Trump rotation” continues. At some point this will lose steam but until then expect the same. Obviously some charts like the Russell 2000 are VERY overextended near term and could use some consolidation and rest.
Index charts:
Short term: The S&P 500 broke over old highs on Monday and as you can see even intraday never violated that level as “resistance becomes support”. Then a nice pop to end the week.
The Russell 2000 has been nearly vertical since Trump’s win as it is full of domestic companies. This appears to be a bet on lots of domestic spending by the U.S. government and potential protectionism. Plus the rise in the dollar doesn’t hurt companies that sell mostly in the U.S., as it would multinationals.
“The prospect of a unified U.S. government pursuing a pro-growth agenda through deregulation, tax reform, and fiscal stimulus seems to be driving current trends. Such an environment should be relatively favorable to growth stocks and to smaller-capitalization stocks with less exposure to the negative effects of a strong U.S. dollar,” wrote analysts at Guild Investment Management, in a Thursday note.
That said, this is an amazing move. As of Wednesday’s close:
The Russell 2000 Index climbed 0.6% to extend its win streak to a 14 sessions, the longest in over 20 years. The small-capitalization company tracker has soared 16% since the streak began. The Russell 2000?s current win streak is the longest since the 15-session stretch ending Feb. 6, 1996.
And then came a 15th day of gains on Friday!
Last week was the first sustained move over 0 for the NYSE McClellan Oscillator since mid summer! So it was a time to be bullish again – now we have moved so far we are in overbought territory short term. That does not need we need to fall back down dramatically in the indexes – it just means some consolidation would be healthy.
Long term: Here are multi year weekly charts. A breakout to new highs for both major indexes. Not much more to say here.
Charts of interest:
It continues to be a “pro growth” rotation….
Industrials…
Consumer discretionary…
Transportation stocks continue to surge.
After a massive Trump surge post election, copper pulled back quickly but has come back up just as violently.
Housing stocks are thriving – another domestic “play” by traders.
Note technology stocks are largely being left out!
Symantec will buy Lifelock (LOCK) a seller of identity-theft protection services, for $2.3 billion in cash, The Wall Street Journal reported Monday.
Medtronic (MDT) dropped 8.7% Tuesday after the maker of medical devices reported sales that missed expectations and cut its profit outlook.
Eli Lily (LLY) closed down more than 10% Wednesday after the company said its Alzheimer’s drug failed.
Deere (DE) rallied 11% Wednesday after profit and sales beat expectations. This company is in the heart of the “rotation” trade.
Have a great week and we’ll see you back here next Sunday!
