Sometimes too much good news can be interpreted badly. Take the U.S. central bank’s about face on monetary policy late last year. That was good news and investors responded by bidding the stock market up by 20%. But this week we may have received even better news, or did we?
At the Market
What a difference one quarter can make in the stock market. Here we are in mid-March and stocks are back to almost where they were at the beginning of October. The trends have been supporting the bull’s case and investors seem happy to buy stocks.
Investors were greeted on Friday with two nasty surprises. Both occurred in February. Chinese exports dropped by 20.7%, while in the U.S., the nation added a dismal 20,000 jobs. As you might expect, the stock market did not take the news well.
February delivered good gains for the markets. All the main averages were up, continuing January’s climb toward the old highs. This week, momentum stalled a bit, indicating that investors need more good news to continue buying.
Investors remain cautiously optimistic that the wall of worry that has been plaguing us for months may now be crumbling. That’s no sure thing, but at least we did have some good news this week.
Profit-taking is a natural and expected part of the stock market. That’s why no one should be surprised that this week we are witnessing a period of consolidation. It is actually a good thing.
After two years of tightening monetary policy, the U.S. Federal Reserve Bank signaled this week that it was time to put their monetary tightening program on hold. The stock market soared in celebration.
The markets needed a break. Overbought, extended, and tired of buying, traders took a time out this week. It is a necessary part of the market equation. Two steps forward, one step back. Now that we have had six days of consolidation, expect more upside.
It was a week where lackluster earnings battled with the Fed’s willingness to hold off on rate hikes for investors’ attention. The Fed won. Investors bought on the dips and helped to push the markets out of correction territory.
The stock markets have gained almost one percent per day since the beginning of the year. If you had panicked and sold during the Christmas holidays, you are sitting in cash wondering when to get back in. Here is some advice.
The sell-of in stocks has now exceeded the 2016 decline. Investor sentiment is as low as it has been since May of that year. The Fed refuses to save us, and Donald Trump insists on his wall or he will lay off thousands of federal workers. Did I say Merry Christmas?
Stocks worldwide have experienced a downdraft since October. All the gains so painstakingly made thus far in 2018 have been erased. Volatility has battered markets with all the severity of a Nor’easter. Next year may prove to be a continuation of the same.
This Saturday evening, Donald Trump and Xi Jinping will sit down to dinner in Buenos Aires at the G-20 conference. Investors are holding their breath, hoping that the two might come to some agreement that could lower tensions and avert a full-out trade war between the U.S. and China.
Black Friday sales are in full swing. Normally, today is all about the retail trade. Consumers spend the day waiting in line, picking up heavily discounted ‘door buster’ deals, and generally starting their holiday gift shopping. This year, it appears traders are also holding their own Black Friday sales.
This week saw a re-test of the October lows. That is to be expected in most stock market corrections. What is important to the future well-being of equities globally is that the averages do not decline much further from here.
Stocks are in the process of consolidating after the big gains over the last week or so. So far, the October sell-off has led to a recovery of about half of what was lost. In the two months ahead, we should see even further gains.