Uncategorized, Weekly Update

Does the Strong Start to the Year Actually Matter?


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Published March 1, 2019

timingcube_cartoon030119

Article after article discusses this “best start” for the stock market in umpteen years. Most of those pieces make little or no mention of the “worst ever” December that preceded the “best start”. No question, the market has rebounded strongly; so strongly that we now look back on the many bear market calls and must now dismiss them, at least in any near term outlook. A pivotal indicator for making such a determination is the volatility index – the VIX. This index remains above 15 during prior bear markets as investor nervousness remains elevated (a higher number means more investor fear). The past few days the VIX has fallen below 15, and has stayed there so far. Therefore, it appears the odds are high that we are no longer in the midst of a bear market.

So does this strong start portend a strong year? Last year, stocks ripped higher in January only to give the entire 10% gain back in February. Barring a sudden turn of events in the China-U.S. trade discussions, stocks look happy to largely hold their early 2019 gains. The history below shows a very compelling, almost perfect track record when the stock market posts gains in both January and February.

Almost perfect track record when the stock market posts gains in both January and February

In the near term, however, with a nine week winning streak in the bag, we see mixed results upcoming, at least for the Dow Industrials.

Dow with a nine week winning streak

In short, a strong two month rebound in stocks appears to have sent the bears back to their cave and set the stage for a solid 2019 performance.


Market Update

Stocks opened the week with a halting +0.1% gain on further encouraging news regarding the China-U.S. trade discussions. A couple of reports suggesting slowness in the housing market kept stocks flat Tuesday. Weakness in business investment/factory orders held the market flat for a second day Wednesday, though retail stocks showed strength. Testimony to Congress from Fed Chair Powell ultimately lifted interest rates, which have spent much of February trading flat. The advance Q4 GDP report showed decent +2.6% growth, suggesting the economy continues on solid footing despite the 4th quarter’s stock market panic. Thursday brought the end of the month and a slight -0.3% slip as cyclical stocks underperformed. However the month of February delivered a second straight monthly gain for most indexes as market fears further diminished. Stocks began the month of March with their strongest gains of the week, rising +0.7% as news of an imminent agreement on China-U.S. trade continues to support markets. Interest rates rose for the third consecutive day on that trade optimism.

The S&P 500 (SPY) continues to pause at the 2800 level. However, the index managed a +0.46% gain for the week, its ninth week of gains in ten since December’s swoon. The Nasdaq 100 (QQQ) fared the same, adding +0.87%. Small-caps (IWM) held flat at +0.06%.

Warm wishes and until next week.