The market has provided traders and investors alike something akin to “Mr. Toad’s Wild Ride” instead of what we’re more accustomed to — a nice smooth sleigh ride into Christmas.
The Thanksgiving holiday week was gut wrenching, closing down hard on Black Friday to retest the prior lows. As it would be though, the market held the bottom and this week has seen investors cheer up as some much-needed clarity on key issues emerged.
Investors got what they were hoping for coming into the final month of 2018 — a statement from Fed Chairman Jerome Powell that shed some positive light on interest rates and, more importantly, the rate in future hikes on short-term rates. To use a common phrase, “it’s what the doctor ordered” because the market has been looking sickly for the past two months.
The S&P 500 traded higher and extended weekly gains by 2.3% on Wednesday after Powell said he sees current interest rates “just below” neutral. That proved to be a rally point because the language Mr. Powell used early last month indicated a view that the Fed Funds rate was “a long way from neutral.” Meanwhile, the Dow Jones Industrial Average gained 2.5%, the Nasdaq Composite gained 3.0% and the Russell 2000 gained 2.5%. It was a banner day all around.
Fed Chair Powell added that there is no preset policy path, and the Fed will be data-dependent in its decision making, which also pleased investors. By highlighting risks, though, that included previous rate increases, trade disputes and Brexit/European Union (EU) political uncertainty, the market chose to read between the lines that the Fed chair isn’t committed to three rate hikes in 2019.
Powell’s perceived dovish remarks sent bond yields and the dollar lower. The U.S. Dollar Index dropped 0.6% to 96.84, the 2-year yield fell three basis points to 2.80% and the 10-year yield slipped one basis point to 3.04%.
Regarding trade disputes, investors remain hopeful that some kind of agreement can be struck between the United States and China to forestall further protectionist trade measures. There is a widening belief that President Trump might aim to keep a floor of support under the stock market by striking a more conciliatory tone in his Saturday meeting with China’s President Xi Jinping.
Nevertheless, it remains a speculative trade given President Trump’s tough-minded tariff position and the headline crossing the tape that tough-talking Director of Trade and Industry Policy and aide Peter Navarro will be attending dinner with President Trump and China’s President Xi. Investors are remiss to think that a deal of any strength will be struck at the G20. I assume that a tone of constructive optimism will be the best outcome.
On another bullish note, results from last weekend’s retail sales that included Black Friday through Cyber Monday were record-setting figures, and not just by a little margin. Black Friday pulled in a record $6.22 billion in online sales, Adobe Analytics reported. Online sales on Black Friday jumped 23.6% from a year ago and Cyber Monday smashed previous records with online sales of $7.9 billion, Adobe Analytics indicated.
Back to the stock market, the S&P information technology, consumer discretionary and health care sectors provided strong support for the broader market. Thankfully, the IT sector is leading the rebound with Microsoft, Adobe Systems, Amazon.com, Intuit, Salesforce.com and Visa, all of which soared in Wednesday’s big rally.
When seeking out the best stocks that will carry the torch for the market back to new all-time highs, my Hi-Tech Trader advisory service will get investors in early and on a very timely basis. The S&P rallied 3.8% from the retest low seen last Friday while the companies cited above gained an average of 8.2%. That’s what I call leadership, when the best of breed blue-chip stocks outpace the market’s benchmark index by over two times.
The only serious question investors need to ask is will they be satisfied with whatever the major averages return, or do they want to participate in stocks and exchange-traded funds that double the market’s performance. Quite frankly, this is a loaded question and I look forward to working with all new subscribers who want to get in on the rest of the best of my market leading technology stock picks for the balance of 2018 and into 2019. Click here and put Hi-Tech Trader to work in time to take full advantage of the year-end rally and into 2019.
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