Courtesy of Blain.
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Back to business…
While there was not much movement in the major indexes this past week it was still a significant win for the bulls as prices had been quite removed from major moving averages last week so even some “stalling” and consolidation this past week would have been a victory. So indeed that is what happened. Almost all the week’s gains were consolidated in an hour to open Tuesday morning and the closing moments of Friday. Considering we had a holiday Monday that means all the action was at the very open and close of the week!
In economic news, existing-home sales ran at a seasonally adjusted annual pace of 5.69 million, the National Association of Realtors said Wednesday. That was 3.3% above an upwardly-revised 5.51 million in December and 3.8% higher than a year ago. Homes available for sale declined 7.1% compared to a year ago – even as prices spiked 7.1% higher. The median price was $228,900.
Also on Wednesday, the Federal Reserve minutes were released and they were a bit more hawkish than expected:
“Many” Federal Reserve officials indicated their support for raising rates if the economy continued to strengthen, according to the minutes of the Fed meeting earlier this month. But the transcript also showed a mood of uncertainty over President Donald Trump’s fiscal policy plans, which have been the biggest boost to stocks during the past few months.
While it makes our writing a bit repetitive, this type of rally without relent or pullback is just a major grind on any bear. You can see in the S&P 500 chart, that this rally has been SO unrelenting the index has not closed below even the FIVE day moving average since the first day or two of the month!!
We don’t follow the Dow Jones Industrial Average much as it’s a very narrow index but it is up 11 days in a row. That is rarefied air. And for market bulls, good news. There have only been 8 other such streaks per Bespoke, and each has led to at minimum a positive gain of some sort 3 months later – often by a good amount. The average being 7%.
Also per Bespoke, with a gain of 10.48% in the 72 trading days since the Election, the only President who had a stronger first 72 trading days was JFK (+13.12%).
More good news for the bulls. Since 1945, there have been 27 years when the S&P has achieved gains in January and February. The stock index then finished up for the year (on a total-return basis) in every one those years, according to CFRA’s Sam Stovall. That’s going 27 for 27, or batting a thousand. The average rise in those years was 24%, as shown in his chart below, and the gauge was up further in the remaining 10 months 25 of 27 times.
Here is a 5 day “intraday” chart of the S&P 500 via Jill Mislinski.
This week in eye candy; the global economy by GDP share in a pie chart.
The U.S. economy, as measured by gross domestic product, is by far the largest in the world at $18.04 trillion. China, the closest thing the U.S. has for a competitor, is No. 2 with a GDP of $11 trillion, while Japan is a distant third with $4.38 trillion. Put another way, the U.S. economy is roughly equivalent to the combined gross domestic products of the eight next-biggest countries after China — Japan, Germany, the U.K., France, India, Italy, Brazil and Canada.
Not sure how true this is, but if accurate it is a fascinating reason why “west sides” of major cities are more prosperous than “east sides”.
The east sides of New York, London and Paris are noticeably and famously poorer than their western sides. And it turns out there’s a reason for that. Researchers have found that it’s due to the impact of air pollutants at the time of the Industrial Revolution, as prevailing winds in the U.S. and Europe typically blow from west to east. And it’s an impact that has lasted into today.
The week ahead…
President Trump is scheduled to make a speech to Congress on Feb. 28, where he is expected to provide details on his highly anticipated tax reform proposals. Federal Reserve Chairwoman Janet Yellen and Fed Vice Chairman Stanley Fischer are slated to speak on Friday next week. Investors will scour the comments for any hints as to when the central bank will raise interest rates.
We won’t get the monthly employment data this Friday, but we will get ISM manufacturing and non manufacturing on Wednesday and Friday respectively.
Index charts:
Short term: Two weeks in a row we have said the only negative thing in these 2 charts is that things are “extended”. We will repeat it a third week. That said, at least there was some consolidation this past week!
The Russell 2000 did not partake this week (again)- it remained stuck in this yellow range.
The NYSE McClellan Oscillator near zero is a bit of a surprise with the major indexes in rally mode last week.
Long term: Here are 5 year charts on the major indexes; again nothing negative here other than things are extended… in fact the NASDAQ has now broken ABOVE the upper part of our channel on a weekly basis! That is the second week in a row this has happened.
Charts of interest:
Wednesday, home builder Toll Brothers (TOL) jumped 6.1% after posting a fall in profit and revenue, but rising contracts in five of its markets.
First Solar (FSLR) dropped 8.4% Wednesday as the solar-panel maker reported that it swung to a loss on restructuring charges. But it regained all that AND MORE on Thursday and Friday. Boo yah.
Shares of Tesla (TSLA) dropped 6.4% Thursday after the electric-car maker late Wednesday reported a wider-than-expected quarterly loss, though its beat sales expectations.
Nvidia (NVDA) shares closed down 9.3% Thursday after a round of bearish analyst comments prompted investors to take profits from the highflying chip maker, which has more than tripled over the past 12 months. Instinet downgraded the stock to reduce from buy, while BMO Capital Markets cut its price target to $85 from $100.
It wouldn’t be a proper week if a brick & mortar retailer didn’t punch it’s investors in the teeth.
Shares of L Brands (LB) sank 16% Thursday after the Victoria’s Secret parent late Wednesday issued weaker-than-forecast guidance for 2017.
But some good news in that sector Friday as Foot Locker (FL) gained 9.4% after the shoe retailer reported profit that beat forecasts.
Have a great week and we’ll see you back here Sunday!
