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Strong Year in the Markets

Strong Year in the Markets—12/23/2019

As the year is coming to a close, the market has been very strong.  As I type this, the price change on the S&P 500 is a positive 28.5% for 2019.  All this has occurred with political turmoil swirling within the United States, a trade war raging between China and the U.S., and geo-political uncertainty popping up all over the world.

The question that many may ask is, why?  Why has the market rallied so hard to the upside with all these uncertainties in the air?

I think the answer to that question is; earnings.

At the end of 2016, S&P 500 earnings’ were $94.55.  Projected 2019 S&P 500 earnings are $140.55.  Running the numbers and those data points shows a 48.5% cumulative growth rate in earnings over that time frame.

There is no question; that will make the market move!

 

Divergence in Fundamentals and Market Performance

The market has been very strong this month with the price change on the S&P 500 being up 6.34% month to date. Performance numbers like this should represent a growing economy and booming earnings. However, the latest employment report has a drastic disappointment and earnings growth is slowing. Additionally, all the talking heads on tv are discussing when the Fed will cut rates. And, as we know, the Fed cuts rates to help stimulate a stalling economy.

So what gives? We have a roaring stock market and a potentially slowing economy.

This is something to watch for sure.

An interesting twist from the Fed

An Interesting Twist from the Fed—-2/20/2019

Almost all the volatility in the 4th quarter was caused by the Fed Chairman and his clumsy language. And some of those comments focused on the “autopilot” program regarding the Fed’s balance sheet normalization and how the Fed had no intention of stopping that program.

Well, today the Fed said they were going stop the program later this year!!!
https://www.cnbc.com/2019/02/20/the-fed-just-released-minutes-from-its-market-moving-meeting.html

What in the world is going on?

First, the Fed rattles the markets saying they aren’t going to stop this program under any circumstances. And then after the market rallies hard to the upside, they say they are going to stop the program.

I see two possible reasons for this change of heart…

1) the Fed has become totally beholden to asset prices and this move helps ensure prices will move higher (note: this is a total 180 degree turn from Fed Chair Powell’s comments late last year)

2) the economy is much worse than market participants realize and this move will help bolster the economy as it slows.

Not sure which one it is, but it is one of the most interesting moves I’ve seen in the markets for quite some time.

Monster Rally to begin the year

After one of the worst Decembers in market history and THE worst Christmas Eve trading day EVER, the market has put up some incredible return numbers to begin 2019. As I type this the S&P 500 is up over 10% year to date…and it is only February 19th!! If you annualize those numbers, you get 103%.

I think it is fair to say that it is highly unlikely that the market will posted gains of over 100% for the year. With this in mind, I expect a pullback at some point in the near future. Maybe after a trade deal with China is inked. Why? Well, it seems that every day we get news that trade negotiations are going well and the market moves higher. Before too long, all the good news could be priced into the market and there will be nowhere to go from there.

Regardless of why the market pulls back, I expect that it will. A 103% return for the market just seems unlikely to me for 2019. Nevertheless, we can have a VERY nice year this year.

Apple’s earnings boost market

 Apple’s Earnings Boost Market—1/30/2019

The market was extremely weak in December for many reasons, including earnings fears. One of the biggest earnings fears was related to Apple, given their exposure to China. Nevertheless, Apple released some excellent numbers related to those earnings fears after the bell last night proving that the pessimism was overblown in December.

Given Apple’s weight in many of the indices, this could be a big deal for the markets moving forward.

https://www.cnbc.com/2019/01/30/apple-beats.html

Another Big Jobs Beat!

 Another Big Jobs Beat!—1/4/2019

The experts were anticipating job growth of 174,000 for the month of December. But the actual number was released today and it was 312,000!!!!

Also, wages jumped 3.2% versus a year ago.

But with these numbers the unemployment rate actually ticked HIGHER, as more people joined the labor force. Which is a great sign for the strength of the economy.

https://www.cnbc.com/2019/01/04/nonfarm-payrolls-december-2018.html

Biggest Upside Point Move in the HISTORY of the Dow

Biggest Upside Move in the History of the Dow—12/26/2018

After the worst Christmas Eve trading day EVER, the Dow rallies 1,086 points the day after Christmas to post its biggest upside point move in its history. This move almost doubled the downside move that occurred on Christmas Eve! WOW!!!!!!!!

https://www.cnbc.com/2018/12/26/us-futures-following-christmas-eve-plunge.html