Week-In-Review: Stocks Flirt With New Record Highs

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2016.10.293129

Stocks Flirt With New Record Highs

The market is flirting with fresh record highs after the G-20 trade truce and hopes for more easy money from global central banks returned to the fore. Last week, the S&P 500 hit a fresh record high while the Dow Jones Industrial Average and the Nasdaq Composite both hit fresh closing highs. Meanwhile, the small-cap Russell 2000 is trading a few percentage points below its record high and is lagging a little. Stocks rallied in the first half of the week after Trump and Xi met at the G-20 and agreed to a trade truce. Then, the narrative quickly shifted to more easy money from the Fed and other global central banks. Remember, if you filter out all the noise, the single biggest driver for stocks has been easy money from the Fed and other central banks so that is front and center in my mind. Looking forward, we have some inflation data coming out next week and then a slew of earnings. Stay tuned! 

Monday-Wednesday’s Action:

On Monday, stocks gapped up after Trump and Xi agreed to a truce in their ongoing trade war. The market spent the day drifting lower and at one point the Russell 2000 turned negative. The bulls showed up before the close and helped the market close in the middle to lower half of the daily range. On a short-term basis, that is not ideal and suggests some near-term fatigue may be creeping in. Stocks were mostly quiet on Tuesday as investors digested the recent action. In other news, the IMF’s Christine Lagarde, was nominated for top job at European Central Bank. On Wednesday, stocks rallied and hit record highs on signs that more easy money will be coming from the Fed. Trump nominated two people who are considered dovish to join the Fed and the latest economic data was weaker-than-expected. ADP, the country’s largest private payrolls company, said US employers added 102,000 new jobs in June, missing estimates for 135,000.

Thursday & Friday Action:

The market closed was closed on Thursday for the July 4th holiday. Before Friday’s open, the government said the U.S. economy added a +224,000 jobs in June, easily beating estimates for a gain of 165,000. The market fell on Friday because the stronger than expected jobs report led many to speculate that the Fed may not cut rates at its July meeting. The good news is that if the economy is strong enough the market can rally on its own accord. 

Market Outlook: Easy Money Is Back

Once again, global central banks showed up and juiced 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. As always, keep your losses small and never argue with the tape.

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