Week-In-Review: Strong Start To 2020
The market opened 2020 on a strong note after China announced more easy money to stimulate its economy (and it’s market). In the short-term, the U.S. indices are very extended to the upside and way over due to pullback. That doesn’t mean they can’t continue going higher, it just means to be ready for a pullback so you are not caught off guard for when it does happen. We are entering election season, the Fed (and other central banks) are back in the super easy money camp (one can argue they never left) and I highly doubt we will see any major deliberate negative events coming ahead of the election. So, all that translates into strong stock prices, barring some ugly, unforeseen event, of course. The market can very easily get “too hot” and enter a climax top similar to what we saw in the late 1920’s and the late 1990’s. We are not there yet but that is one scenario that may unfold in the future.
Stocks fell over 200 points on Monday as investors took risk off the table on the second to last trading day of the year. China said it is ready to sign the trade deal and White House trade advisor Peter Navarro told Fox News that the signing will likely happen within next week or so with both sides waiting for the translation. Even with that “good” news on the trade front, stocks still ended lower. Stepping back, the market is very extended and it is perfectly normal to see it pullback to consolidate the recent rally. Stocks were little changed on the last trading day of the year. For 2019, the Nasdaq Composite gained a whopping 35.23%, The S&P 500 vaulted by a very healthy 28.88%, the small-cap Russell 2000 gained 23.72%, and the Dow Jones Industrial Average rose by 22.34%. 2019 was a very strong year for Wall Street. The market was closed on Wednesday to celebrate the New Year.
Thursday & Friday Action:
On Thursday, stocks soared after China announced another round of easy money aimed at juicing their economy and their market(s). For now, we are in a very strong bullish phase for the market and weakness should be bought, not sold. Stocks fell on Friday after the U.S. conducted a strategic military strike against Iran.
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. In 2019, 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.