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Stocks are up three weeks in a row and have literally rallied every week since Trump took office. The market closed at fresh record highs as buyers continue to accumulate stocks. Stepping back, this is beginning to feel like the very early stages of a 1999 style climax/blow-off top. Of course, we are open for any possible scenario that may unfold, but for now, we are in a very strong bull market and weakness should be bought, not sold. The strength is broad based, as big money continues to flow into the major indices and several important sectors: Financials (XLF), Materials (XLB), Industrials (XLI), Steel (SLX), and Technology, just to name a few. For now, pullbacks remain very shallow in both size (small % decline) and scope (short in duration). Until that changes, the bulls remain in clear control. We do want to note that markets do not go straight up and are getting extended to the upside. A nice light volume pullback would be very welcome.
Stocks ended slightly lower on Monday, as investors digested the latest round of earnings. Energy stocks weighed on the market as crude oil fell. So far, over half of the S&P 500 companies have reported fourth-quarter results, and about two-thirds of them beat Wall Street expectations, according to Thomson Reuters. Furthermore, the long earnings recession is most likely over. Stocks were relatively quiet on Tuesday as investors continued to digest the latest round of earnings and economic data. Energy prices continued to fall as the US dollar rallied. Shares of General Motors (GM) tumbled over 4.5% after the company reported earnings. The automobile giant said it will pay each employee $12,000 in an effort to help retention and boost morale. Stocks closed mixed on Wednesday as metals rallied. Investors are looking forward to Trump’s pro-growth policies such as cutting taxes, deregulation and government spending…but nothing happening just yet. The S&P 500 hasn’t had a 1% intraday move since Dec 14! That is the longest period of intra-day nothingness in history.
Thur & Fri Action
Stocks rallied on Thursday after Trump promised a “big league” tax announcement. The market has been looking forward to hearing Trump’s tax plan because that is expected to be a big boost to the economy. Economic data was quiet. Weekly jobless claims slid by 12,000 to 234,000, which was lower than the Street’s estimate for 250,000. Separately, wholesale trade data for December showed a 1% increase on inventories. Stocks rallied on Friday after Trump took a big step closer to strengthening relations with both Japan and China.
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 US 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.
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