Stocks finally snapped a very strong 6-week win streak as the market paused to consolidate the recent and robust rally.
Small caps continued to lag and ended lower which is a sign of near-term fatigue. The Small-Cap Russell 2000 broke below its 50 DMA line which is not ideal in the near term. Meanwhile, the S&P 500, Dow Jones Industrial Average, and the Nasdaq composite closed near their respective 10 day moving average lines last week. The next level of support to watch is the 21 day moving average line, then the more important 50 day moving average line.
The jobs report came in stronger than expected and which means the Fed will most likely raise rates by a quarter point on Wednesday. That would mean rates will go from 0.50% to 0.75%, which is still very bullish for stocks. Fiscally, the environment remains promising and the Trump administration said that they plan to announce tax reform within six months.
A Closer Look at What Happened Last Week…
Mon-Wed Action:
Stocks fell on Monday as the market continued pulling back after the prior Wednesday’s near term high (the day after Trump’s speech to Congress). Geopolitical tensions swelled after North Korea fired 4 ballistic missiles into the water near South Korea. Separately, market expectations jumped to 86.4%, according to the CME Group’s FedWatch tool that the Fed will raise rates next week. The Fed will announce its decision on March 15th when it concludes its latest two day meeting.
Stocks fell again on Tuesday after the House GOP released its plan to repeal Obamacare. Biotech stocks led the way lower as consensus spread that the new plan will bring down drug prices. Stocks were quiet on Wednesday to mostly lower after oil prices plunged 5.4%. A slew of other commodities also fell after a big run. Separately, ADP, the country’s largest payrolls company, said U.S. employers added 298,000 new jobs last month, easily beating estimates for 190,000. The report represents the first full month under President Donald Trump, who has pledged to rebuild the nation’s aging infrastructure system and stimulate the economy. Billionaire Investor, David Tepper, went on CNBC and was bullish on stocks and bearish on bonds.
Thur & Fri Action:
Stocks were quiet on Thursday after the European Central Bank (ECB) held rates steady and said low rates are here to stay for an extended period of time. The ECB left its headline rate at 0%, its marginal lending rate at 0.25%, and its deposit facility rate at negative -0.4%. On Friday, the Labor Department said U.S. employers added 235,000 new jobs last month, easily beating estimates for around 200,000.
Market Outlook: Strong Action Continues
The market remains strong as the major indices continue to hit fresh record highs. The bulls have a very strong fundamental backdrop of monetary and now fiscal policy. The ECB extended QE in December and will print another 2.4T to stimulate markets and the global economy. The U.S. Fed only raised rates once in 2016, by a quarter point to 0.50%, which, historically, is still very low. On the fiscal side, Trump’s pro-growth policies are received well. As always, keep your losses small and never argue with the tape.
