Taxes got the attention last week, but it was the alchemy of earnings and elections that spurred stocks to their best week in months.

The week got off to a rocking start, with the Dow leaping 216 points on Monday following the relatively benign results in the French presidential election—benign because only one radical anti-European candidate made it through to the second round. That, says Marketfield Asset Management CEO Michael Shaoul, allowed the market to capture gains that probably would have come earlier if it weren’t for the risk that something really bad would happen. “In a world without the French elections, we would be where we are today, just more smoothly,” Shaoul says.

But the good news didn’t stop there, as corporate earnings continued to shine. It wasn’t just that companies like McDonald’s (ticker: MCD) and Ingersoll-Rand (IR) have been reporting better-than-expected profits, but that guidance is better as well. Bank of America Merrill Lynch strategist Dan Suzuki notes that for a second month in a row more companies have offered above-consensus guidance than disappointing forecasts; historically, the reverse has been true. Still, it wasn’t that the week was without its downers. Donald Trump’s tax plan lacked details, and failed to get the market moving, while first-quarter gross domestic product data was even worse than expected: The U.S. economy grew just 0.7%, below economist forecasts of 1%. In a note to clients, Strategas Research Partners’ Daniel Clifton called the sluggish growth “the U.S. economy’s warning shot to the Republicans,” who need to move past the infighting that scuttled health-care reform and pass their tax plan if they hope to get the economy growing at a rate faster than 2%—and retain their majority in Congress. “If the squabbling continues, growth remains restrained, and, in a lower voter turnout midterm election, the Republican majority will be lost,” Clifton explains.

If Republicans can push something through, it will probably mean a further boost for corporate earnings, especially if the border-adjusted tax remains sidelined. That could ultimately make all the difference for a bull market that’s already long in the tooth. “If you’re buying the market here at the highs, you have to be confident that you get almost everything that’s been promised,” says Ian Winer, head of equities at Wedbush Securities.

Or at least almost everything.

Source: Barrons Online

Stocks fell 1% last week in quiet trading, with many market participants out for religious observances. Worries about the war in Syria, North Korean saber-rattling, and the coming French elections had investors reining in riskier positions and heading for safe havens.

Real estate, utilities, and consumer-staples stocks were the only sectors that rose last week. Financials—and banks in particular—fell, despite strong earnings reports from the industry’s big kahunas.

Tech stocks, which are out of favor lately, fell 1.4%. The Standard & Poor’s 500 Information Technology Index has finished lower 10 days in a row, only the fourth such streak since 1989, when daily data on the sector was first posted, according to Bespoke Investment Group. Tech stocks rallied in the three months following the three prior pullbacks, all deeper, BIG wrote in a recent report. Tech is down only 2% from its recent highs, and hasn’t yet surpassed the peak set in 2000 during the dot-com boom.

The Dow Jones Industrial Average declined 203 points, or 1%, to 20,453.25 over the four-day span. (The market was closed Friday in observance of Good Friday.) The Nasdaq Composite dropped 1.2%, to 5,805.15.  Steve Sosnick, senior trader at broker-dealer Timber Hill, notes that much of the damage came in the afternoon Thursday, as traders squared positions ahead of the three-day weekend. “Some people didn’t want to hold positions ahead of a long weekend,” given geopolitical concerns, he says.

(Source: Barrons Online)

It was the quarter the Trump trade died…and the market didn’t seem to mind.

Yes, the Dow Jones Industrial Average rose 4.6% to 20,663.22 during the first three months of 2017, its sixth straight quarter of gains, while the Standard & Poor’s 500 index gained 5.5% to 2,362.72, and the Nasdaq Composite climbed 9.8% to 5,911.74, its best quarter since 2013.

But the market produced those gains without much help from the sectors that surged following the November presidential election—the ones that were supposed to benefit the most from the policies proposed by President Donald J. Trump. The S&P 500 Industrials index, which was supposed to benefit from increased infrastructure spending, rose 4%; financials, which would benefit from scaled-back regulation, advanced just 2.1%; and energy tumbled 7.3%. Instead it was the anti-Trump stocks that led the way higher, with technology gaining a whopping 12%. “Tech was left for dead after the election,” says Rhino Trading Partners’ Michael Block. In 2017, it has been the market’s best performer.

The rotation out of what had worked and into what hadn’t has removed a lot of the excesses from the market. The S&P 500 dipped 0.04% during March, and Block notes that as of Thursday night, 50 of the 997 stocks in the Russell 1000 index (yes, 997) were overbought based on the 14-day Relative Strength Index, which measures the speed of price movements, while just 11 were oversold. “That leaves the overwhelming majority in the middle,” Block says. “We are banging around in a range here.”

And it isn’t just stocks that have been doused with a bucket of cold water. The latest American Association of Individual Investors survey shows the percentage of bullish respondents fell to 30.2%, 16 points lower than the start of the year, while bearish sentiment rose to 37.4%, 12.2 points higher. “The market got ahead of itself and was due for a pause,” says SunTrust strategist Keith Lerner. “The good news is that a lot of the sentiment measures have cooled off.”

And why shouldn’t they? Just over a week ago, Trump’s health-care plan died in Congress, and investors were worried it meant the remainder of the administration’s pro-growth agenda could hit roadblocks on the way to becoming law—or not. Those concerns caused the S&P 500 to drop 1.2% on March 21, only the second move of 1% or more in either direction this quarter, the fewest such moves since 1995. That alone was enough to worry investors in the AAII survey: 43% said the lack of downward volatility made them more bearish.

You wouldn’t know it from looking at the market last week, however, as stocks bounced back from the previous week’s losses. The Dow Jones Industrial Average advanced 0.4% last week, while the Standard & Poor’s 500 index rose 0.8%, and the Nasdaq Composite gained 1.4%. Natixis Global Asset Management strategist David Lafferty attributes the rebound to Trump’s ability to pivot away from the health-care disappointment to talk about tax cuts. “The market changes its narrative when Trump changes his mind,” he says.

But maybe the rally has less to do with Trump and more to do with the fact that global economic data has been consistently strong. Last week, the final reading of fourth-quarter gross domestic product showed growth of 2.1%, above forecasts for 2%. The Conference Board’s measure of consumer confidence surged to its highest level since 2000, and that was just in the U.S. SunTrust’s Lerner notes that 84% of countries have been showing expanding manufacturing activity, the best level since 2014. “A solid synchronized global recovery has been in place that goes beyond the winner of the U.S. election,” he says.

The Trump trade is dead. Long live the Trump trade.

(Source: Barrons Online)

Late Friday, Republican leaders pulled their health-care bill before it could be voted on. That hasn’t pulled the rug out from under the bull market, however.

Sure, the Dow Jones Industrial Average dropped 317.90 points, or 1.5%, to close at 20,596.72 last week, its largest weekly tumble since September 2016. The Standard & Poor’s 500 index fell to 2343.98, while the Nasdaq Composite slipped 1.2%, to 5828.74.

And that loss would seem to justify the talk on the Street that the failure to repeal Obamacare jeopardizes the Trump administration’s tax and infrastructure plans—and could cause the market to crater. The fact that the worst-performing stock in the S&P 500 on Friday was Martin Marietta Materials (ticker: MLM), which supplies the gravel and stones used in roads and other infrastructure projects, would only seem to add to the evidence.

Yet Friday’s drop was muted. The Dow, which was the biggest loser among the major averages, fell just 59.86 points, or 0.3%, while the Nasdaq rose 0.2%. “Markets breathed a sigh of relief on the notion that if Republicans can agree to [put the ACA aside] and move on towards tax reform and deregulation, then this is bullish,” says Jason Ware, chief investment officer at Albion Financial Group.

In fact, the major damage was done on Tuesday, when the S&P 500 fell 1.2%, ending its 160-day streak without a 1% drop. And while that decline provided ammunition for those predicting an imminent collapse, it was simply one bad day. “It is, of course, natural,” says Daniel Chung, CEO of asset manager Alger. “Things literally can’t go up forever.”

That hasn’t stopped the bears from looking for danger in every piece of data. Bank lending, for instance, has slowed since the election, and some observers have pointed to that fact as a sign that the animal spirits that were supposed to juice the economy have been a mirage. Deutsche Bank economist Torsten Sløk, however, notes that bank lending is a lagging indicator, and that it usually follows the ISM Manufacturing survey with a delay. The fact that the ISM data has been rising—it recently hit its highest level in two years—suggests that bank lending could increase in the months ahead. “It’s a red herring,” Sløk says.

(Source: Barrons Online)

Late Friday, Republican leaders pulled their health-care bill before it could be voted on. That hasn’t pulled the rug out from under the bull market, however.

Sure, the Dow Jones Industrial Average dropped 317.90 points, or 1.5%, to close at 20,596.72 last week, its largest weekly tumble since September 2016. The Standard & Poor’s 500 index fell to 2343.98, while the Nasdaq Composite slipped 1.2%, to 5828.74.

And that loss would seem to justify the talk on the Street that the failure to repeal Obamacare jeopardizes the Trump administration’s tax and infrastructure plans—and could cause the market to crater. The fact that the worst-performing stock in the S&P 500 on Friday was Martin Marietta Materials (ticker: MLM), which supplies the gravel and stones used in roads and other infrastructure projects, would only seem to add to the evidence.

Yet Friday’s drop was muted. The Dow, which was the biggest loser among the major averages, fell just 59.86 points, or 0.3%, while the Nasdaq rose 0.2%. “Markets breathed a sigh of relief on the notion that if Republicans can agree to [put the ACA aside] and move on towards tax reform and deregulation, then this is bullish,” says Jason Ware, chief investment officer at Albion Financial Group.

In fact, the major damage was done on Tuesday, when the S&P 500 fell 1.2%, ending its 160-day streak without a 1% drop. And while that decline provided ammunition for those predicting an imminent collapse, it was simply one bad day. “It is, of course, natural,” says Daniel Chung, CEO of asset manager Alger. “Things literally can’t go up forever.”

That hasn’t stopped the bears from looking for danger in every piece of data. Bank lending, for instance, has slowed since the election, and some observers have pointed to that fact as a sign that the animal spirits that were supposed to juice the economy have been a mirage. Deutsche Bank economist Torsten Sløk, however, notes that bank lending is a lagging indicator, and that it usually follows the ISM Manufacturing survey with a delay. The fact that the ISM data has been rising—it recently hit its highest level in two years—suggests that bank lending could increase in the months ahead. “It’s a red herring,” Sløk says.

(Source: Barrons Online)

The Standard & Poor’s 500 index ended a six-week winning streak as tumbling oil prices and a looming Federal Reserve rate hike caused stocks to stumble.

The S&P 500 fell to 2,372.60 last week, while the Dow Jones Industrial Average dropped 102.73 points, or 0.5%, to 20,902.98, their largest declines so far this year. The Nasdaq Composite dipped 0.2% to 5,861.73, its first weekly decline in seven weeks.

It’s a wonder the losses weren’t any bigger. The week started with the release of the widely criticized Republican plan to repeal and replace Obamacare, finished with a jobs report that virtually guarantees a rate hike at next week’s Federal Open Market Committee meeting, and saw oil drop below $50 a barrel. The downward pressure on the market, however, was limited.

That was, in part, because of the strength of the employment data, which was neither too hot nor too cold. The U.S. economy added 235,000 jobs in February, beating economist forecasts for 200,000, but not the blowout number that could have forced the Fed to raise rates by more than a quarter percentage point. If anything, the data just confirm what we’ve known for a while now: The economy is growing, and one rate hike is unlikely to do much damage, says MKM Partners strategist Michael Darda, who called the March Fed meeting “largely irrelevant.”

There’s still a strong likelihood of some sort of economic stimulus plan from the Trump administration sometime this year. Yes, it might be delayed by wrangling over the Republican proposal to repeal and replace the Affordable Care Act, which was met with derision from Democrats, moderate Republicans, and hardcore conservatives. But the fact that tax cuts and infrastructure projects are even being considered at a time when the U.S. economy is adding 200,000-plus jobs a month is “unprecedented,” says Richard Bernstein, chief investment officer at Richard Bernstein Advisors. “We’re going to add more stimulus on top of this.”

Still, a sense of unease hangs over the market, especially after the price of oil fell 9.1% last week, sinking to its lowest level since November. And the market is certainly overdue for a selloff. The S&P 500 generally drops 3% to 5% every two to three months, says Binky Chadha, chief global strategist at Deutsche Bank. The index has now gone more than four months without such a decline. Tumbles of 5% or more, meanwhile, have historically occurred every five to six months, Chadha says, something that hasn’t occurred since the Brexit vote eight months ago.

But just because the market is due for a correction doesn’t mean it will get one. While sentiment has played a big part in the rally, so has the fact that investors didn’t appreciate recent economic strength, says Chadha. As long as that continues, bouts of weakness should remain relatively muted. “Consensus forecasts have underestimated the recent rebound in growth and remain subdued, suggesting positive surprises are likely to continue in the very near term, so we don’t expect a pullback,” he says.

Never mind the unease.

(Source: Barrons Online)

Like an English major wading through James Joyce’s Ulysses, the market last week was trying to make sense of overlapping narratives. That didn’t stop it from extending its weekly winning streak.

The Dow Jones Industrial Average breached the 21,000 mark for the first time, gaining 183.95, or 0.9%, to close the week at 21,005.71—its fourth straight weekly gain. The Standard & Poor’s 500 index rose to 2383.12, and the Nasdaq Composite advanced 0.4%, to 5870.75; both have been up for six straight weeks.

Much of the action was compressed into one day. After barely moving last Monday and Tuesday, the Dow surged more than 300 points on Wednesday, its largest one-day point gain since Nov. 7, just before the election that swept Donald Trump into office. That the big gain followed Trump’s speech to Congress Tuesday night wasn’t lost on many observers, who noted its conciliatory tone. “Trump became presidential,” Strategas Research Partners Dan Clifton wrote in a note to clients last week. The market appeared to agree, even if some of the enthusiasm was tamped down by the need for Attorney General Jeff Sessions to recuse himself over his unacknowledged contact with Russia’s ambassador during the presidential campaign.

But it was more than just a speech that got the market’s juices flowing. Barclays strategist Keith Parker points to the slew of economic data that was released in the hours following the address. A survey of Chinese manufacturing activity rose for the eighth month, while a similar measure in the U.S. hits its highest reading in nearly three years. “You have synchronized developed-market and emerging-market growth,” Parker says. “That’s a big driver of the rally.”

Is sentiment getting too frothy? The big gains have prompted strategists to lift their S&P 500 projections, with Bank of America Merrill Lynch taking its target to 2450, from 2350, and Stifel taking its to 2500, from 2400. And then there’s Snap (ticker: SNAP). Its initial public offering went off without a hitch after all, as the stock soared 44% on its first day of trading, from the offering price of $17 to a closing price of $24.48. The move meant that Snap left $1.5 billion on the table, the fourth largest amount ever, according to data from University of Florida finance professor Jay Ritter.

Yet Snap, at this point, remains something of a one-off, as others remain reluctant to go public. And Merrill Lynch’s Sell Side Indicator, a measure of Wall Street’s bullishness, still sits in neutral territory despite hitting its highest level in 16 months, a level that in the past has preceded an average gain of 17% over the following 12 months.

Yes, the market narrative has many strands. But for now, they’re pointing to a happy ending.

(Source: Barrons Online)

It may not be chocolate and peanut butter, but a dose of healthy earnings and pro-business comments from President Donald Trump was enough to send the major indexes to all-time highs last week.

It sure didn’t look that way at first, as the market barely moved on Monday, Tuesday, and Wednesday. But Thursday, while meeting with airline executives, Trump promised a “phenomenal” tax plan—and stocks were off to the races. By Friday, the Dow Jones Industrial Average had gained 197.91 points, or 1%, to 20,269.37, the Standard & Poor’s 500 index had risen 0.8%, to 2316.10, and the Nasdaq Composite had climbed 1.2%, to 5734.13.

It’s no secret that the market has reveled in Trump’s pro-business comments, even though he has offered few details, particularly on his tax plan. Don’t expect the market reaction to change, says Mike O’Rourke, chief market strategist at Jones Trading. “It’s a void,” he explains. “Until we have substance and a framework, we will see this kind of reaction to noise.”

But stocks are also reacting to something more fundamental: corporate earnings. Yes, there have been some high-profile disappointments. Gilead Sciences (ticker: GILD) tumbled 8.3% to $66.36 after offering downbeat 2017 sales guidance, while General Motors (GM) dropped 3.2% to $35.17 as investors appear reluctant to believe its forecasts of continued strong profits in 2017. The stronger earnings growth is particularly important because the S&P 500 rose 9.5% last year, despite little-to-no earnings improvement, says Daniel Chung, CEO of asset manager Alger. That meant stocks were rising simply because valuations were climbing.

But if it’s earnings you’re interested in, it might be time to look to Europe. On the surface, that sounds risky, perhaps even ridiculous. Greece was back in the headlines last week after the IMF said the struggling European nation needed more debt relief. That sent Greek bond yields soaring, as investors worried about the possibility of a renewed crisis. Then there’s the potential for chaos from elections in the Netherlands, France, and Germany, which could take a populist turn, akin to that taken by voters in Britain and the U.S.

Yet Merrill Lynch strategist Ronan Carr notes that earnings growth in Europe could be faster than in the U.S. this year and next, after lagging behind by 76 percentage points since 2009. At the same time, the value of the MSCI USA index, relative to the MSCI Europe index, hit its highest level in 40 years. “A strong earnings recovery could be the catalyst to unlock the value potential in Europe,” Carr writes.

To which we can only say: finally.

(Source: Barrons Online)

The Dow Jones Industrial Average needed a strong finish on Friday to end the week right back where it had started—above 20,000.

Stocks began the week on the wrong foot, with the Dow dropping 229.65 points on Monday and Tuesday. Whether because the market was reacting to President Donald Trump’s travel ban, as some observers suggested, or earnings disasters from companies like United Parcel Service (ticker: UPS) and Under Armour (UAA), was immaterial—stocks looked headed for their first 1% weekly drop since early November.

And then they weren’t. Trump’s decision on Friday to roll back regulations on banks played a big role in getting the market’s juices flowing, as Goldman Sachs Group (GS) and JPMorgan Chase (JPM) soared 4.6% and 3.1%, respectively. The Dow finished up 186.55 points but close to flat on the week, something that “makes all the sense in the world,” says Greg Woodard, senior analyst at Manning & Napier. “The market is moving on every bit of political news.”

All told, the blue chips finished the week close to where they began, down 22.32 points, or 0.1%, at 20,071.46. The Nasdaq Composite both ticked up 0.1% to 5,666.77.

It wasn’t all due to Trump, of course. On Wednesday, the Federal Reserve elected not to raise interest rates. No surprise there, but it also didn’t signal whether or not it would be raising rates in March.

That decision looked sound after Friday’s release of the January payrolls report, which revealed a large increase in jobs but muted wage growth. That would seem to indicate little inflation pressure, something that could allow the Fed to remain on hold—and buy investors time to see how Trump’s policies play out. “It was very much a wait-and-see message,” says Jason Pride, director of research at Glenmede.

But what are we waiting for? Many investors appear to assume that the next market move will be higher and that they will be able to see the next downturn “coming a mile away,” says Adam Parker, chief U.S. equity strategist at Morgan Stanley. “We are worried there is a potential arrogance in adopting this view.”

He points out that just over a year ago, stocks were still trying to find a bottom following a plunge that left nearly everyone shell-shocked—and that the S&P 500 has gained 20% during the last 12 months. “How can anyone be more bullish now?” Parker asks.

It’s a good question.

(Source: Barrons Online)

No one likes making a call and being placed on hold. Unfortunately, that’s exactly where the market is just about now.

This is not what was supposed to happen. The new year began with high hopes, with the bulls expecting the rally that began with Donald J. Trump’s election victory to continue into 2017, while the bears salivated at the opportunity presented by a market that had gotten way ahead of itself. Instead, the market has failed to break up or down. Last week, the Standard & Poor’s 500 index was virtually flat at 2,274.64, while the Dow Jones Industrial Average declined 78.07 points, or 0.4%, to 19,885.73. The Nasdaq Composite bucked the trend by gaining 1% to 5,574.12, a record high.

“It has taken longer than people had hoped” for the market to find direction, says Frank Cappelleri, executive director at Instinet. “It’s frustrating for both sides.”

What made it particularly frustrating was that President-elect Trump had the opportunity to get the market going again, but elected not to. At his press conference last week, Trump covered a lot of ground—everything from the media to manufacturing to the sky-high price of pharmaceuticals. But he didn’t cover the three subjects investors especially wanted to hear about—namely taxes, fiscal policy, and infrastructure. As a result, some of the primary beneficiaries of the Trump trade stalled.

The bright side: While investors might be reluctant to place further bets on the Trump trade, they’ve been more than willing to dive into areas that had lagged. Consumer discretionary and tech stocks, in particular, got a boost, with Facebook (ticker: FB) and Amazon.com (AMZN) gaining 4% and 2.7%, respectively. That suggests investors haven’t given up hope for more market upside, they’re just seeking less elevated opportunities. “Everyone’s looking for value where it resides,” says Todd Lowenstein, director of research at HighMark Capital Management. “That’s a healthy sign.”

(Source: Barrons Online)