Weekly Review 11-15.12.2017

Market Litmus Test: Interest Rates!

Bulls had a lot of good headlines to work with! The Brexit talks advanced substantially, debt ceiling discussions – which have been going on for weeks now on Capitol Hill – seem to be making substantial headway, and the November employment report came out stronger than expected. It seems that positive news in a market like this are never fully priced in, and that causes the market to continue rallying higher.

 

The indexes succeeded in bouncing back, tacking on a couple of days of gains and closing up for the week after a few losing days. Even though most of the losses from the beginning of December were offset, that notwithstanding, we can see a difference in the character of this market. The determination of “correction buyers” has waned and there’s no group of stocks taking the helm and leading the market higher now.

In Summary for the Week: The Dow Jones rose 0.48%. The S&P 500 tacked on 0.4%, the NASDAQ ending up with minimal gains of 0.14%.

The employment report, the most important economic figure of the month, which was released before trading opened on Friday, was like a God-send for the stock market. The growth in employment figures pointed to a strong economy on the one hand, but on the other, one with low inflation. In other words, we got the perfect recipe for continued market gains. All-in-all, 228 thousand jobs were created in November, the unemployment rate remaining low at 4.1%, half a percentage point beneath its level at the beginning of the year. The gains in wages came out relatively low – at 0.2% – not a clip that could cause inflation.

This coming week brings with it the Fed’s interest rate decision and there’s a lot of talk about progress with the tax bill. It seems that the new tax bill is a positive catalyst that keeps on paying and paying… for stocks that is! The market has rallied time in and time out on every new development in that regard. It could be that after the last vote the response we got was “sell the news” but in the meantime, it seems that computerized algorithms are programmed to buy every headline.

There are not enough negative factors now for bears to have the upper hand and there are a number of indicators that necessitate us exercising caution. This coming week will be an interesting test in so far as the market’s response to the ebb and tide of the news.

We’re now in the last few weeks of the year and are on the verge of wrapping up a year with sharp gains for the S&P 500, the market index soaring 18.2% so far for the year. Since 2009, the S&P 500 has recorded gains year in and year out, except for 2015 – when it saw a minimal decline of 0.73%. In 6 of the last 9 trading years, the S&P 500 has recorded double digit gains!

The more you look at the charts over a longer timeframe, you’ll see that the S&P 500 has continued trading at an uptrend, and to the extent that the U.S. economic figures don’t project a recession any time soon, there’s no reason to fight with the trading tape and exit your stock positions.