Easy money from global central banks continues to be the primary driver of this very strong bull market. On Thursday, we saw the European Central Bank (ECB) increase and extend QE (print more money) and then on Friday, China's central bank cut rates and took other easy money measures to stimulate markets. As a quick recap, the bulls regained control of this market four weeks ago when stocks bounced off formidable support in late September and early October. The big day occurred on Fri 10/2/15 after September's weaker than expected jobs report was announced (additionally, August and July's jobs reports were both revised lower). That was a pivotal day because it changed the market's perception, and basically eliminated the chance the Fed will rates anytime soon.
For months, we have argued that, "Wall Street is ready for a rate hike but Main Street clearly is not. So the easy money trade is alive and well (for now)." Fundamentally, that is the primary driver of this entire/aging bull market and trumps the weak action we continue to see from Main Street (both on the earnings and economic front). Technically, the S&P 500 and Dow Industrials broke out of a bullish double bottom pattern "W" and look very similar to the Nasdaq in 1998 (before it soared into the March 2000 high). This has the potential to set the stage for a very similar advance, especially if the market continues acting well to all the easy money sloshing around the world from global central banks. In the short term, the market is extended to the upside and due for a little pullback here to digest the recent and strong rally off support. We also want to note that over the past four weeks, the S&P 500 soared a whopping +11% which is not an insignificant sum. Remember, in "normal" (non QE) days, a 10% gain for the entire year was considered healthy. The big negative divergence remains the small-cap Russell 2000 and the fact that it is under performing on a relative basis.
Monday-Wednesday's Action: Pullback, What Pullback?
Stocks were quiet on Monday as investors digested the latest round of economic and earnings data. The big news came from China, when the country said Chinese GDP grew by 6.9%, just beating estimates for 6.8%. It was below the whisper number of seven percent and was the lowest reading since Q1 2009. Crude oil and other commodities fell on the news.
Stocks fell on Tuesday after the S&P 500 came within one point of 2040 which has been major resistance (formerly support). Shares of IBM (IBM) and Harley Davidson (HOG) were two well known stocks that gapped down after reporting weak earnings. Verizon (VZ) and Travelers (TRV) gapped up after reporting Q3 results. So far, earnings are a mixed bag and the reaction remains mixed at best. Housing starts rose to 1.206M, beating estimates for 1.147M. Stocks opened higher but closed lower on Wednesday after biotechs and a slew of healthcare stocks dragged markets lower. Valeant Pharmaceuticals (VRX) was the standout loser after shares plunged 30% on rumors of an Enron-style accounting fraud.
Thursday-Friday’s Action: Easy Money Sends Stocks Higher..Again
Stocks soared on Thursday after the easy money trade returned to the fore. Before Thursday's open, Mario Draghi juiced markets when he said the European Central Bank (ECB) would consider more QE (print more money) in December due to weakness in the global economy and emerging markets. He also said he's open to extending QE past the initial September 2016 deadline, if needed. Stock futures and the US dollar soared on the news. The euro plunged to a three week low. After the close, Amazon.com, Inc. (AMZN) , Microsoft (MSFT) and Alphabet (GOOG) , all gapped higher after reporting Q3 results. Before Friday's open, China announced new easy money measures to stimulate markets. Beijing cut interest rates by a quarter point, cut the reserve requirement by 50 basis points and lifted their ceiling on bank deposits. Stock futures soared on the news and the easy money trade is alive and well.
Market Outlook: Bulls Are Strong
This bull market is aging by any normal definition and celebrated its sixth anniversary in March 2015. The last two major bull markets ended shortly after their fifth anniversary; 1994-2000 & 2002-Oct 2007. The fact that easy money is here to stay (for now) is all that matters. Everything else is noise. Eventually that will change, but not yet. As always, keep your losses small and never argue with the tape.
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