A decent week here as the S&P 500 stopped just short of record highs; almost all the action was on Wednesday. Quantitative easing is back on again in Europe and easy money traders across the globe rejoice.
The European Central Bank delved deep into its tool box on Thursday, cutting its deposit interest rate further into negative territory, launching a new round of monthly bond purchases and taking other steps to stimulate a flagging eurozone economy. The ECB said it would begin buying 20 billion euros a month worth of securities beginning Nov. 1.
“Today’s decisions have anchored and enshrined the Draghi legacy in future ECB decisions. ‘Whatever it takes’ has just been extended by ‘as long as it takes,’ said Carsten Brzeski, chief economist at ING Germany, referring to Draghi’s famous 2012 pronouncement at the height of the eurozone debt crisis that the ECB would do “whatever it takes” to preserve the euro.
Some vague nation of trade talks resuming between China and the U.S. in October appeased many as did some blinking on both sides.
China has reportedly offered to buy more American agricultural products in exchange for a delay in upcoming tariffs and the easing of a ban against doing business with Chinese telecommunications giant Huawei Technologies, according to the South China Morning Post.
Retail sales grew faster than expected in August, up 0.4%, and were up 4.1% year-on-year, the U.S. Commerce Department said on Friday. The rise was driven entirely by purchases of new cars and trucks though, as retail sales ex-autos were flat.
“This morning’s number was above expectations but more importantly it’s the sixth straight month of positive growth for retail sales which is a really encouraging,” wrote Mike Loewengart, vice president of investment strategy at E-Trade Financial in an email. “With holiday spending on the horizon and inflation at bay, we could continue to see momentum in the retail sector. A healthy consumer can help inject some energy into other sectors of the economy.”
“It’s been good news all around for the markets this week. You have thawing of trade tensions. You have more central bank easing, and you have Goldilocks economic data. Investors are thrilled…and that’s why you have markets just fractionally below all-time highs,” said Michael Arone, chief investment strategist at State Street Global Advisors.
Interesting spike in Treasury yields last this past week; this was the largest weekly move since 2013!
“The bond market may have been a bit overbought on the long-end last month, but this sudden shift into optimism on the prospect of a trade deal getting struck and the ability of the Fed to create a steeper curve — I don’t think that’s sustainable. It’s got to take much better data for long-end Treasury yields to break out of this range,” said Karissa McDonough, chief fixed income strategist at People’s United Advisors.
… also this is an interesting sector to see a rally in. Part of that could be rotation as momentum stocks seem to be on the outs with traders right now.
For the week, the S&P 500 added 1% and the NASDAQ advanced 0.9%.
Here is the 5 day weekly intraday chart of the S&P 500 …not via Jill Mislinski.
The week ahead..
All that will matter to markets is the rate cut coming this week!
“The question is will the Fed signal a willingness to keep going with rate cuts, or will they suggest this mid-cycle adjustment is nearing its end. My view is they’re not going to back themselves into a corner, and they’re going to give themselves plenty of room to cut again at some point,” Arone said. “That’s going to be the biggest risk right now. The markets are pricing in a number of rate cuts in the next few quarters and will the Fed deliver on that…That will be a friction point.”
And again… and again… and again. Would not be surprised to see the U.S. quantitative easing in 18 months if the market dares to drop 15% one of these days!
Short term: the S&P 500 rallied to right below it’s old highs.
The Russell 2000 had a huge Wednesday but was stopped at week highs by this resistance line created by connecting the highs of May and August.
The NYSE McClellan Oscillator was positive all week, so we seem to be in a good place in the near term!
Long term: decent conditions.
Charts of interest / Big Movers:
Monday, both Fannie Mae (FNMA) and Freddie Mac (FMCC) rallied by more than 43%, after U.S. Treasury Secretary Steven Mnuchin said on Fox Business that an agreement between the Treasury and the Federal Housing Finance Agency soon ends the Fannie and Freddie profit sweep. Mnuchin said the deal would allow the government-sponsored enterprises to begin retaining earnings.
Wendy’s (WEN) fell 10.2% Tuesday after announcing a $20 million plan to serve breakfast nationwide from 2020. The fast-food chain said it will update its 2019 guidance to take the one-time investment into account though “all other elements of the company’s 2019 outlook remain unchanged.” Wendy’s expects 2019 adjusted earnings per share to be down 3.5% to 6.5%.
SmileDirectClub (SDC) tumbled nearly 28% in its debut at as public company Thursday. The company, which sells clear teeth aligners, finished at $16.67 after pricing its initial public offering Wednesday afternoon at $23 apiece.
Have a great week and we’ll see you back here Sunday!