Dow Rises Past 25,000!

February 16, 2018.

The Dow is back – but is it better than ever?! Having climbed for 5-straight trading sessions, placing down a stake again in the 25,000 point level, what remains to be seen now is where things go from here. There’s no other way of putting it, we’ve got a tug of war, a battle of the ages. Who will win this all out arm wrestle is really anyone’s guess. We can’t say with any measure of confidence that the correction is now over. Macroeconomic and microeconomic factors have collided in so far as the market is concerned. Companies’ stellar earnings and revenues, which have trounced historical averages, are a reason for the market to climb. But it could very well be that nestled within the market’s success, we can find the very force pulling it back, perpetuating the selloff and price correction that dragged down all major indexes recently. When the market heats up too quickly – especially when it receives fiscal and monetary policy boosts in the form of tax cuts or quantitative easing – what the market cannot ignore is not only the recessionary risks. We’re very far from a recessionary pullback now; the problem is that with inflation picking up, the market could overheat, the Fed faced with no choice but to boost rates. And if that happens too quickly, things could get ugly, capital investment could stall and in a double whammy, investors would liquidate their investments, looking for safe haven securities, the likes of bonds and gold. What investors seem to want now is two-fold, inflation but inflation that’s not too high, leaving the Fed with little choice but to play a waiting game, a game that’s paid off so nicely for stock investors.

Daily Summary: The blue chip Dow rose 1.2%, the S&P 500 also tacking on 1.2%. The tech-leaning NASDAQ rose 1.6%.

Wall Street opened strongly higher yesterday, only to then see an intraday pullback. Then, when the latest inflation and labor market figures were released, the market got a needed boost. The data showed that the market was in a sweet spot, growing but overheating nowhere on the immediate horizon. Cisco (CSCO), then, broke the good news with excellent numbers, giving the market just what it needed. CSCO rose 4.7% on the day, making it the biggest winner on the Dow. The network hardware giant released an outlook that beat the Street’s estimates, the company also boasting revenue growth for the first time in over a year-and-a-half. The company’s yearly performance is the second best on the Dow, trailing only Boeing (BA).

BNY Mellon Wealth Management, Chief Investment Officer, Leo Grohowski, noted, “This is a year of recalibration. In January we recalibrated to higher earnings, and now we’re doing it for higher bond yields, which have been led by potentially higher inflation. Market participants are correctly focusing on inflation, because a rise in inflation can preface an economic slowdown, or an increase in interest rates that could lead to one.”

Warren Buffett, the good old Oracle of Omaha, in time tested fashion, also created market movement. It’s almost beyond debate that Buffett has the best name in the market – and when he puts his money somewhere, the “smart money” follows. Two stocks benefitted recently from this “Buffett Effect:” Apple (AAPL) and the Israeli pharmaceutical giant, Teva (TEVA). When news broke that Warren had raised his stake in the iPhone maker another 31.24 million shares, the company rose 3.4%. Teva had the same fate yesterday. Upon the release that Berkshire Hathaway had purchased just under 19 million shares of the company, TEVA jumped 8.5%. It would seem that every company wants Buffett to put his seal of approval on the company’s stock. They’d probably even sell him shares at sub-market prices if they could, just for the “Buffett Effect.”

Joe Quinlan, Bank of America Global Wealth and Investment Management’s Head of Thematic Strategy, in an investor note, wrote, “Non-recessionary market pullbacks tend to be relatively short-lived, while major one-day market selloffs, historically, are typically followed by better-than average returns.”

In other macro news, it pays now to watch the dollar, which is on track to see its worst weekly run in two years. The WSJ U.S. Dollar Index is off 1.8% on the week. On the flip side, the Yen, seen as a safer shore at times of economic and financial shocks, has seen gains ever since the global stock pullback last week. Even though inflation data has lifted expectations for a 4^th rate hike this year, the dollar hasn’t been able to pare its losses. One strategist at ACLS Global, Marshall Gittler, tried to wrap his hands around this phenomena: “It may be that the market feels the Fed won’t be so aggressive this time around — that given the trade-off between inflation and growth, they will lean toward supporting growth and therefore won’t hike rates as much as they would normally during a period of high inflation.”

And what’s new with cryptocurrencies?! It seems that even the smartest minds can’t put the chills down investors’ spines. Bitcoin rose again past $9,000 on Wednesday, showing no sign of abatement. Buffett’s partner, Charlie Munger, though, can’t stand all the hubbub and fanfare. “It’s just disgusting that people have been taken in by this.” Munger added, “I never considered for one second having anything to do with (bitcoin). I detested it the minute it had been raised. The more popular it got, the more I hated it. . . . Bitcoin is noxious poison.”

Jobless claims rose 7,000 to 230,000, though have stubbornly remained closed to multi-decade lows. Wholesale prices were up 0.4% in January, receiving a boost from oil prices. Core producer prices, which exclude food and energy prices, also rose 0.4%. Two manufacturing sentiment gauges showed solid growth so far this month. The Philadelphia Fed’s index climbed to 25.8 points from January’s 22.2. The Empire State Index dropped to 13.1 from January’s 17.7 point level; it indicated growth and improving conditions. The growth clip, though, was lower than anticipated. Mortgage rates rose to their highest level in four years.

Other big movers yesterday were Trip Advisor (TRIP), which surged 4.1%. McDonalds rose 0.5% after the fast-food giant opted for a healthier menu. Avon jumped 13%, Antares Pharma rallying 19%. Amag Pharmaceuticals soared 29% after announcing that the FDA had approved a product involving an auto injector drug device.

Be primed for housing starts and import and export prices at 8:30, with consumer sentiment numbers coming out at 10:00.

Friday’s Hot Stocks: SNBR, SHAK, CBS, TRUE, CGNX

Have a great trading day!

New York Strategy Swing