Week-In-Review: Christmas Rally Continues On Wall Street
The market continued to rally last week after the Fed reiterated its easy money stance and Phase 1 of the trade deal was pretty much done. So far, 2019 has been an exceptionally strong year for the market and all signs suggest the rally will likely continue since we broke out of a long 18 month base a few months ago. Remember, it’s perfectly normal to see the major indices rally sharply after a long sideways period. Most recently, we saw this happen, 2013-mid 2014, then the market moved sideways from 2014-Q1 2016, then it ripped higher from 2016-2018. Then, once again, the market paused to digest the move, and broke out in 2019. Looking forward, how long this rally lasts is anyone’s guess but the fact that the Fed slashed rates 3 times this year, and expanded its balance sheet, sets the stage for another big leg higher. Until we see any technical damage, the bulls remain in clear control.
Stocks fell slightly on Monday as investors waited for a busy week of central bank data and the latest round of earnings to be released. On Tuesday, the market ended with a small loss as investors waited for Wednesday’s Fed meeting and then Thursday’s ECB meeting. On Wednesday, stocks ended the session higher after the Federal Reserve left interest rates unchanged. Jerome Powell signaled the central bank would keep policy “somewhat accommodative” which was largely matched expectations.
Thursday & Friday Action:
On Thursday, stocks rallied nicely after news spread that Phase 1 of the trade deal will be signed. The uncertainty revolving around the trade deal has been one of the biggest obstacles for investors in 2019. Stocks were quiet on Friday as investors digested the latest headlines regarding the trade deal. Now that Phase 1 is pretty much completed, the market will shift its focus to Phase 2. That will likely be more difficult because most of the “sticky” points that could not be agreed to in phase one were pushed back to phase 2. So, the phase 2 drama will be interesting. It’s never a dull moment on Wall Street.
Market Outlook: Easy Money Is Back
Once again, global central banks are back on the easy money bandwagon after the Fed and the ECB both announced more easy money measures directly aimed at stimulating global markets. The market has soared all year based on two key points: optimism that a trade deal will be reached between the U.S. and China and more easy money from global central banks. Earlier this year, the Federal Reserve reversed its stance and moved back into the easy money camp. Then, other central banks followed suit and that means easy money is back to being front and center for the market. Separately, the trade talks are moving in the right direction which is another positive. As always, keep your losses small and never argue with the tape.