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Trifecta Of Data Boosts The Market Higher

The market ended higher last week helped by a trifecta of positive data: The Fed, earnings, and economic data.

CEO of Sarhan Capital

Adam Sarhan is the Founder and CEO of 50 Park Investments – A Private Investment Firm. 50 Park invests in private businesses/equity and capital markets. Adam is well known in the world of finance and is frequently quoted in the media.
Adam Sarhan is the Founder and CEO of 50 Park Investments – A Private Investment Firm. 50 Park invests in private businesses/equity and capital markets. Adam is well known in the world of finance and is frequently quoted in the media.

The market ended higher last week helped by a trifecta of positive data: The Fed, earnings, and economic data. The big move came from the Federal Reserve, after it said it will pause and not raise rates in the foreseeable future. That is a BIG shift from the Fed’s stance in October 2018 which sent the market diving 20% in a few weeks. After that big sell-off the Fed did a 180 and has now shifted back to an easy money stance.

Remember, the market is very sensitive to easy money and that has been one of the primary catalysts for this entire 10-year bull market. Stocks also rallied nicely on a slew of positive reactions to earnings and economic data. For now, near-term resistance is the 200 DMA line for the major indices and then 2018’s high. Separately, near-term support is the 50 DMA line and then 2018’s low.

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Monday-Wednesday’s Action

On Monday, stocks fell more than 200 points after shares of Caterpillar and Nvidia plunged on earnings and weak guidance. Caterpillar’s stock fell hard after the company reported earnings. Separately, shares of Nvidia plunged after the company lowered guidance and warned of a weak quarter. Stocks were quiet on Tuesday as investors digested the latest round of earnings and waited for Apple to report after the close. Apple rallied after reporting earnings and this was a classic case where the tech giant lowered guidance before announcing numbers. If the company didn’t lower guidance significantly, it would have been a big miss. Wednesday was a big day on Wall Street as the market soared after the Fed said it will be patient and not raise rates again in the near future. That was a complete shift from what the Fed said in October (it would continue raising rates) and that comment sent stocks plunging 20% before bottoming on December 24, 2018. This lesson reiterates the importance of paying attention to the Fed. After Wednesday’s close, Facebook gapped up after reporting numbers.

Thursday & Friday Action

Thursday was the last day of the month and January 2019 was the strongest January since 1987. That could be a good thing or a bad thing depending on what happens later this year. Remember, the stock market crashed in October 1987 and lost over 22% in one day! Let’s hope that doesn’t happen again. Before Friday’s open, the Labor Department said US employers added 304,000 jobs last month (despite the government shutdown) which easily beat estimates. That was a very strong report and signaled continued economic strength.

Market Outlook: Market Rally Continues

The market has turned around after the Fed reversed its stance and moved back into the easy money camp. Near-term resistance is the 200 DMA line for the major indices and then 2018’s high. Separately, near-term support is the 50 DMA line and then 2018’s low. As always, keep your losses small and never argue.