Multiple attempts were made on Mount Everest over a period of 20-some-odd years before Edmund Hillary and Tenzing Norgay summited its peak in 1953. Hopefully it won’t take that long for the Dow Jones Industrial Average to reach 20,000.
Last Friday, the Dow came within 0.37 point of reaching that big round number, the closest it has come since Barron’s put the blue-chip benchmark on 20,000-watch on Dec. 10. Lost amid all the will-it-or-won’t-it was the fact that the Standard & Poor’s 500 index and the Nasdaq Composite closed at record highs last week, even as the Dow ultimately fell short.
The Nasdaq Composite climbed 2.6% to 5521.06. The Dow Jones Industrial Average rose 201.20 points, or 1%, to 19,963.80, its second-highest close on record.
Should we worry that the Dow faltered just as it seemed it would finally take 20,000? Probably not, says Sameer Samana, global quantitative strategist at Wells Fargo. The Dow has been making its attempt for only a few weeks, and its failure to break through has come after a 9.2% rally since Nov. 4. If the market stays in a rut, he might get worried. For now, Samana contends it’s “just a matter of time.”
And time appears to be on the market’s side. Even a “disappointing” payrolls report last Friday was unable to derail the stock market’s surge higher. Yes, the U.S. created 156,000 new jobs in December, fewer than the 175,000 predicted by economists. But the headline miss didn’t take into account the upward revisions to previous months, which easily offset the December shortfall. “We’re generating more jobs than there are people to fill them,” says Jonathan Golub, Chief U.S. Market Strategist at RBC. “It just feeds this,” he continues, “this” being the stock market rally, of course.
Stocks inched higher this week, but investors are still waiting for the Dow Jones Industrial Average to breach 20,000.
Yes, it almost got there. Last Tuesday, the Dow came within 13 points of that elusive round number, but it finished the week just short at 19,933.81, up 90.40 points, or 0.5%—marking its seventh straight week of gains. The Standard & Poor’s 500 index to 2263.79, while the Nasdaq Composite rose 0.5%, to 5462.69.
It was probably too much to expect fireworks from the Dow this week. With the long Christmas weekend looming, trading all but dried up. On Friday, the Dow traded in a range of just 35.09 points, the smallest since Dec. 30, 2013, and the rest of the week wasn’t much more exciting. On Friday, just 3.98 billion shares traded hands, the lightest volume on a full trading day since Dec. 26, 2014.
It’s also perfectly reasonable—and not just because most of us were looking ahead to the holidays. The Dow has gained nearly 10% since the end of October, more than double its 4.1% rise during the first nine months of the year, spurred in part by Donald J. Trump’s victory in the 2016 U.S. presidential election. The pause “makes some sense given how much the market has run,” says Jason Pride, director of investment strategy at Glenmede. “But 20,000 is a clearable number.”
Eminently so, and don’t be surprised if it happens as early as next week. Historically, the last week of the year has been a nice gift to investors. Since 1928, the S&P 500 has gained 1.14 percentage points during the last five trading days of the year, notes Cornerstone Macro technical analyst Carter Worth, well above the average 0.14-point rise for all five-day periods. “The odds are high” that the last days of the year will “play out well,” he observes. And if they do, we won’t have to wait for 2017 to witness Dow 20,000.
For the market last week, it was time for wallflowers to finally join the party.
It wasn’t simply that all three major indexes rallied to new all-time highs, but that the tenor of the rally appeared to have changed, as well. Sure, the Dow Jones Industrial Average gained 586.43 points, or 3.1%, to 19,756.85, leaving the blue-chip benchmark just 243.15 points away from 20,000. The Standard & Poor’s 500 index rose to 2,259.53, and the Nasdaq Composite, which had been trailing for so long, climbed 3.6%, to 5,444.50.
Yet for the first time since Donald J. Trump’s victory in the 2016 election, the split between apparent winners and losers under his presidency began to narrow. Yes, the financial sector continued to top the S&P 500 after gaining 4.8% last week, but technology, which has been bringing up the rear in recent weeks, was a close second after rising 4.2%. And even health care, which tumbled as much as 2.2% on Wednesday after Trump criticized drug pricing, managed to finish the week in positive territory.
“Instead of health care dragging the market down, the market pulled health care along for the ride,” says Instinet’s Frank Cappelleri.
What’s behind the sudden shift? A big, heaping dose of confidence. On Friday, the University of Michigan’s preliminary consumer confidence index for December rose to 98, the highest reading since January 2015, and is nearing its highest level since 2004. And in a report released last week, Bank of America Merrill Lynch economist Michelle Meyer, after perusing the available anecdotal evidence from company earnings calls and other sources, noted that “there is more optimism about the economy following the election.”
If Trump’s tax cuts and spending plans become reality, that could create a virtuous cycle where “the gain in animal spirits could amplify the boost to the economy from fiscal stimulus,” Meyer wrote.
Market action during the Thanksgiving-shortened trading week indicated that the postelection rally is no turkey.
Indeed, it has legs. Wings, even.
The Dow Jones Industrial Average and the Standard & Poor’s 500 index rose every day last week, and both were up for the third consecutive week, hitting new records. The Dow jumped 284 points, or 1.5%, to 19152.14. The S&P 500 rose 31 points to 2213.35. The Nasdaq Composite also rose 1.5% to a new record.
The Russell 2000 index, which tracks small-caps, has been on an absolute tear, rising 15.8% in three weeks. On Friday, it clocked a 15-day winning streak.
The market is pricing in a near-certainty of faster gross-domestic-product growth next year, says David Waddell, chief investment strategist at Memphis-based Waddell & Associates. If the current trend is for GDP growth of about 2.8%, “that could go to 4.5% pretty quickly,” he adds. “That’s why there’s so much euphoria. We’ve seen big piles of cash coming into the market. People were so terrified of the election, and now all of that cash is coming back in a hurry. That’s why the market’s not going down, because everybody’s buying every dip now.”
But isn’t that euphoria usually a red flag?
“Do not underestimate the value and amplifier of animal spirits,” Wadell says. “Animal spirits, once unleashed, can be pretty superfantastic economic additives.”
And then, in the style of President-elect Donald J. Trump, he exclaims: “It’s gonna be yuge!”
Despite the rally in the Russell 2000, Waddell continues to like small-cap stocks. Small-cap value names tend to do well during periods of high growth and low taxes, he notes, pointing to the disproportionately large rally among those stocks in the early 1980s. Small-caps benefit the most from tax cuts because they don’t have an army of accountants that can reduce their tax bills.
A cut of six to seven percentage points in corporate tax rates should result in a 10% increase in earnings per share for small-caps, notes Jason Pride, director of investment strategy at Glenmede. And Trump has called for a lot more than that—a decrease in rates to 15% from 35%. “The rally in small-caps is more than justified,” he says. Waddell’s sense of bullishness is widespread. But not everyone has given up looking for the brake. Jeff Carbone, co-founder of Cornerstone Financial Partners, says the influx of cash at this stage of the rally has begun to make him cautious.
“My fear is people are trying to chase,” he says. “You can see by the inflows that people are starting to think they’re going to miss something.” Sometimes those animal spirits can lead to misconceptions. Beyond financials, which could benefit from higher interest rates and a rollback in regulations, investors have been making bullish bets on health care, on expectations of changes in regulations and a rollback of Obamacare, and industrials, which could benefit from infrastructure spending.
Tech stocks, which had struggled immediately after the election, rebounded last week. Facebook (FB) rose 2.9% and Amazon.com (AMZN) was up 2.7%. And utilities got a bit of a reprieve after falling since the election; the Utilities Select Sector SPDR ETF (XLU) rose 1.9% on the week.
Precious metals continued to fall, however, belying pre-election expectations that investors would buy gold to hedge against uncertainty. Gold futures dropped 2.5% last week to $1,178.20 per ounce.
The coming week could help determine the path of the market in December. On Friday, the government will release November jobs data, giving investors more clarity on whether the Federal Reserve will be raising interest rates.
A Donald Trump victory in the 2016 U.S. presidential election was supposed to cause a mass selloff in stocks, even a market panic. Instead, the Dow Jones Industrial Average had its best week since 2011.
Talk about getting it wrong. While all the pre-election focus was on the downside of a Trump victory—the protectionism, the score-settling, and the divisiveness—the president-elect, in his victory speech, dialed back the belligerence and struck a conciliatory tone. At the same time Republicans walked away with control of Congress, likely putting an end to Washington gridlock and creating a clearer path for Trump’s massive stimulus plans—more than $4 trillion in spending and tax cuts. Despite an initial selloff in the futures market, “the market saw an opportunity and it jumped,” says Strategas Research Partners’ Daniel Clifton.
Did it ever. The Dow Jones Industrial Average climbed 959.38 points, or 5.4%, to 18,847.66, a new all-time high. The Standard & Poor’s 500 index gained to 2164.45, to snap a two-week losing streak, while the Nasdaq Composite rose 3.8% to 5237.11.
The gains, however, weren’t spread evenly across the market. Health care, which had been the worst-performing sector in the S&P 500, surged 3.3% as the market bet that Trump would focus less on drug pricing and other forms of regulation than Hillary Clinton would have. Technology stocks, which entered the election as the market’s third-best-performing sector, tanked, with Facebook (FB), Amazon.com (AMZN), Netflix (NFLX), and Alphabet (GOOGL) dropping 4% or more in the three days after Trump’s victory. William Smead, chief investment officer at Smead Capital Management, attributes the decline to the fact that big tech went to bed on Nov. 8 with infinite growth opportunities, and woke up with the possibility of being designated monopolies. “Their world literally got flipped upside down,” he says. He doesn’t expect that to change soon.
Perhaps the bigger surprise following Trump’s win was that basic price trends remained unchanged for some parts of the stock market. The S&P 500 industrial sector, for instance, already had gained 3.1% from the beginning of July until Nov. 8, and then tacked on nearly 5% after the vote. Financials, too, continued their hot streak by jumping more than 8%, to go with their 7.6% gain prior to the election. Losers stayed losers, as utilities and consumer staples, which had dropped 6.5% and 4.3%, respectively, before Trump’s win, added to their losses.
Dubravko Lakos-Bujas, head of U.S. equity strategy at JPMorgan, attributes that to the fact that Trump’s win reinforces, and even accelerates a factor in play since mid-year: rising bond yields. They began rising as both the European Central Bank and the Bank of Japan elected not to expand their bond buying, and a Federal Reserve rate hike started looking more likely. Trump’s win adds the possibility of real growth to the mix, and that caused the 10-year Treasury to reach its highest level since January. The jump in yields gave a further boost to certain stocks, while punishing those dependent on yields staying low in perpetuity. “There’s now a chance of a growth injection,” Lakos-Bujas says. “That has caused a more drastic rotation.”
And perhaps prepped the market for more gains. Lakos-Bujas now sees the S&P 500 hitting 2,300 by early 2017, up more than 6% from Friday’s close.
U.S. stocks skidded lower on the week ahead of U.S. elections on Tuesday, Nov. 8. Investors fretted about a presidential race whose outcome appears much tighter than previously thought, raising the odds of a contest with no clear winner. The major indexes fell 2% in mostly uninspired trading.
For the past two weeks, there has been growing market fear of a victory by Republican candidate Donald Trump, whose antitrade and anti-immigration policies are anathema to capital markets.
Lost in the electoral anxiety were third-quarter earnings reports that were generally good, albeit against lowered expectations. Also ignored was the FED’s decision to wait to raise interest rates.
Last week, the Dow Jones Industrial Average fell 273 points, or 1.5%, to 17,888.28; it has fallen for seven straight sessions. The S&P 500 fell 41, to 2085.18, and is down nine consecutive days. The Nasdaq Composite gave up 2.8%, to 5046.37.
Sentiment is hanging on the election, says Mark Heppenstall, chief investment officer at Penn Mutual Asset Management. It has worsened in the face of recent polls suggesting that the verdict will be very close or potentially disputed.
The market wants a Clinton victory with Republicans holding on to Congress to rein in Democratic spending. However, “if there’s no clear winner, that’s a problem,” says Heppenstall. And there’s a “unanimous” view in the market that if Trump wins, the market will be in trouble.
After the surprise United Kingdom vote in June to exit the European Union, investors are hypervigilant about an unexpected outcome, says Jake Dollarhide, CEO of Longbow Asset Management. A Trump victory would lead to weeks of heavy volatility and seesaw action, he adds.
For the investor with the longer view, there’s some solace from past performance: the November-to-April period has been the best time to be in stocks over history.
Equities went up a little, then down a little last week, and by Friday ended up a touch higher than where they had started. Large-cap stocks underperformed, pressured by the rising U.S. dollar. Trading was uninspired, and investors remained on the sidelines.
The major stock indexes rose slightly, snapping a two-week losing streak. The euro hit $1.09, a seven-month low, after the European Central Bank left its accommodative monetary stance unchanged Thursday and didn’t rule out more stimulus in December.
The third-quarter earnings season ground on, but provided little impetus, except for Morgan Stanley, where strong earnings boosted financials, up 1.2% last week. The greenback’s strength hurt mega-caps, such as those in the Dow Jones Industrial Average, which tend to get a significant portion of revenue overseas.
The Dow closed at 18,145.71, up seven points, while the Standard & Poor’s 500 index rose eight to 2141.16. The Nasdaq Composite added almost 1%, to 5257.40.
The market seems tired, says Keith Moore, a strategist at FBN Securities, who adds that investors are sitting on their hands, marking time ahead of the U.S. elections. Adam Sarhan, CEO of Sarhan Capital, says that the sideways action also is a consequence of investors waiting for clarity on other issues, such as the vigor of the quarter’s earnings and the Fed’s expected rate hike in December.
The result is “chop city,” as many are hesitant to commit new capital to an aging bull market, yet “every time the market falls, buyers step in,” Sarhan says. “There’s cash on the sidelines that could come in and send stocks higher,” he observes, but the market lacks a bullish catalyst.
The Fed’s likely rate increase, coupled with the ECB’s continued monetary easing, suggests Continental stocks are relative bargains compared with American equities.
Stocks slipped last week as investors fretted over the possibility that interest rates around the world will rise more quickly than the market has anticipated.
The Dow Jones Industrial Average fell 68 points, or 0.4%, to 18,240.49, while the Standard & Poor’s 500 index dropped 15 points to 2153.74. The Nasdaq Composite also slipped 0.4%, to 5292.40.
The headline economic news was generally strong. The economy added 156,000 jobs in September, modestly below estimates, as the workforce expanded and wages rose; both manufacturing and nonmanufacturing production grew in the U.S. But the positive data did little to boost markets.
European Central Bank officials denied a report they were considering ways to wind down their bond purchases, but the prospect clearly worried investors. British Prime Minister Theresa May said in a speech that low-rate policies had hurt savers and “change has got to come,” a possible nudge to the Bank of England.
“You’re seeing clear evidence that central banks are running out of steam,” says Peter Boockvar, chief market analyst at the Lindsey Group. Without continued stimulus from central banks, investors will have little patience for companies that can’t increase their earnings consistently. “Look what happened” to Honeywell International (ticker: HON), Boockvar says. The industrial conglomerate surprised investors when it cut its earnings and sales estimates because of weakness in multiple units. Shares fell 7.5% on Friday.
With operating earnings for the S&P 500 set to fall for the sixth straight quarter, investors will continue to punish companies that can’t hit their targets, Boockvar predicts. “Without the help from central banks, there will be much less tolerance for earnings misses, earnings declines,” he says.
Rate anxiety was evident in the kinds of stocks that fell during the week. High-yielding companies such as telecom firms, utilities, and real estate investment trusts led the market lower, notes Jason Pride, director of investment strategy at Glenmede. “It’s all tied to this rate chatter,” he said. “It’s like a whisper in the background.”
Nonetheless, Pride says economic growth should continue to buoy markets in the longer run. “All this chatter in the background will move the markets daily or weekly,” he says. “But at the end of the day we’re in an economic expansion, and it doesn’t look like it’s stopping. It’s slow, but it’s still going. That should carry risk assets, that should carry equities.”
U.S. stocks finished an up-and-down week on a positive note, helped by a strong showing from energy stocks and an easing of concerns about the viability of Deutsche Bank, Germany’s largest bank.
The bank’s Frankfurt-listed stock closed Friday at 11.57 euros, up 6.4% on the day. It was also a sign the market is less worried, at least for now, about the bank’s stability than it was earlier in the week, after reports put Deutsche Bank in settlement talks involving billions of dollars concerning a mortgage-security probe by the U.S. Justice Department. Financial companies in the Standard & Poor’s 500 index responded positively, gaining 1.43% on Friday.
The S&P 500 finished the week, having gained 0.80% during Friday’s session to close at 2,168.27. That is about 22 points off its all-time high of 2,190 set on Aug. 15.
Still, “we are on pins and needles,” says Chris Hyzy, chief investment officer at Bank of America’s global wealth and investment-management division. With the third quarter in the books, “we know that October holds more risks,” he adds. He cites the uncertainty of the upcoming presidential election, the possibility of a rate hike in the U.S. late in the year, and concerns about Deutsche Bank’s financial strength as key worries that investors are trying to assess. Yet Hyzy remains upbeat about U.S. stocks, convinced that the third-quarter earnings season will be solid.
Even though it was a so-so week for stocks, there were some nice gains, especially in energy. The Dow Jones Industrial Average gained 0.26%, lifted by an increase of nearly 1% on Friday. One of its constituents, ExxonMobil (XOM), was the second-best performer in the Dow, with a gain of nearly 5% last week. Chevron (CVX) rose about 4%.
The two stocks got a nice boost from rising oil prices. The price of West Texas Intermediate crude finished at more than $48 a barrel, up about 8% on the week. Undergirding the increases was last week’s surprising news that the Organization of Petroleum Exporting Countries had agreed to cut production, a move that should help support oil prices if the deal is actually carried out.
In a roller-coaster week, stocks eked out a small victory. Though the major stock indexes all rose, it didn’t much feel like a positive trend.
Blame that on heightened uncertainty and rising volatility, which began the previous week after Federal Reserve officials stirred up fears of an interest-rate increase happening sooner rather than later. Moreover, recent polls suggest that the U.S. presidential election has tightened, contributing to investor insecurity.
This Tuesday and Wednesday, the policy-setting Federal Open Market Committee meets in what is likely the most-watched Fed confab of the year. On balance, the U.S. economic data released last week—including statistics on August retail sales and industrial production—were soft, reinforcing the market’s expectation a hike won’t come this week.
The probability of a rate hike, as measured by the fed-futures market, sank to 20% from more than 30% a week earlier. Still, investors fear a September surprise. The market was also pushed down by lower oil prices, but received some support from Apple (ticker: AAPL). Its shares rose 11%, to $114.92, on indications of strong sales of its new iPhone 7.
Financials stocks were hurt Friday in particular, after Deutsche Bank (DB) confirmed that it is negotiating with the U.S. Department of Justice to settle a $14 billion civil claim resulting from an investigation into its sales of mortgage-backed securities. Shares fell 12% to $13.38, even though the bank says it has “no intent” to accept that figure.
The Dow Jones Industrial Average rose 38 points, or 0.2%, to 18,123.80, while the Standard & Poor’s 500 index added 11 points to 2139.16. Both indexes have fallen, however, in six of the past eight trading sessions. The Nasdaq Composite rose 2.3%, to 5244.57, largely due to Apple’s gain.
“A step-up in volatility doesn’t make anyone comfortable,” says David Kelly, chief global strategist at J.P. Morgan Asset Management.
The smooth summer sailing is over, adds Peter Kenny, an independent market strategist at Kenny & Co. Since Labor Day, there’s been heavy volume on down days, and institutional investors are net sellers in this slide, he says. The odds are greater for a December hike, but that doesn’t mean the Fed won’t move Wednesday, says Kenny.
“The Fed’s in a tough spot,” says Aaron Clark, a portfolio manager at GW&K Investment Management. “The governors want to hike but the window is closing.” The Fed can cry wolf so many times before it loses credibility and dilutes the power of “Fedspeak” in the future. There’s also an important Bank of Japan meeting Wednesday.
A Fed hike Wednesday could be followed by a knee-jerk selloff below 2100 on the S&P 500, says Kenny. That would be a buying opportunity, Clark believes, saying a likely quarter-point hike won’t make a big difference to economic fundamentals.
A relief rally is likely if there’s no hike. But, says Kelly, much depends on how the Fed explains its action or inaction. Ironically, the best outcome for stock markets could be a hike and an announcement that the Fed is likely done for the year. Everyone clear now?
