After all was said and done it was a very bullish week on Wall Street. The Dow Jones Industrial Average, the benchmark S&P 500, and the small-cap Russell 2000 paused to consolidate their recent and robust rally then soared to fresh record highs. Meanwhile, the tech-heavy Nasdaq Composite galloped higher and is inching closer to its record high of 5132.52, hit in March 2000. The bullish fundamental backdrop remains in place which is healthy for the bulls. The twofold backdrop remains: an improving global economy coupled with “easy money” from major central banks. From our point of view, short term declines should be bought, until material weakness develops in the major averages.
Mon-Wed’s Action: Greece Remains In Focus
On Monday, stocks in the U.S., were closed in observance of Presidents Day. Stocks rallied on Tuesday helping the S&P 500 top 2,100 which is the next important psychological level (round number). Stocks edged higher after rumor spread that Greece would ask for an extension to pay back its debt. Over the long weekend, Greece and the Eurozone hit a stalemate which worried many pundits. The ongoing back-and-forth continued between the two parties all week. In the U.S., housing data missed estimates. The National Association of Home Builders (NAHB) said its index slid to 55, missing estimates for 58. The February Empire Manufacturing Index was 7.78 which also missed estimates for 8.0. Stocks were quiet on Wednesday after a slew of weaker-than-expected economic data was announced and the Fed released the minutes of its latest meeting. In the U.S., housing starts, building permits, PPI, Industrial production, capacity utilization, and manufacturing production all missed analysts’ estimates which is not ideal but helped the dovish case for the Fed to push back its rate hike (expected later his year). At 2pm EST, the Fed released the minutes of its latest meeting which confirmed that the Fed is not in a rush to raise rates. Turning to Europe, the WSJ said that the ECB approved a request to lend €68.3 billion to Greek banks through an emergency credit facility which also helped allay negative concerns.
Thurs & Fri’s Action: Stocks Soar To New Highs
Stocks were quiet on Thursday as investors continued to watch the situation in Europe and digested the latest round of earnings and economic data. On average Q1 earnings did not disappoint which bodes well for the major averages. Retail giant Wal-Mart (WMT) reported fourth-quarter earnings of $1.61 per share, beating estimates by $0.07 but revenues missed estimates. The big news came when the retail behemoth said they are raising the minimum wage for all their employees. Higher wages coupled with adverse moves in foreign currencies caused the company to lower guidance for 2015. Economic data was mixed- Initial jobless claims came in at 283k which beat the 290k forecast. On the downside, continuing claims, January Leading Economic Indicators and the February Philadelphia Fed Index missed estimates. Stocks soared to new highs on Friday after Greece was given a 4-month extension in repaying their debt. In the morning there were conflicting reports but news spread that a deal was reached around 3pm EST. The deal will be signed if Athens submits details on the reform and budgetary measures by Monday, according to Austrian Finance Minister Hans Jörg Schelling. In other geopolitical news, the Financial Times said that NATO forces need to prepare for a major assault by Russia on an eastern European member state (Ukraine). We’ll see if this actually materializes. Hopefully, cooler heads prevail and conflict is avoided.
Market Outlook: The Central Bank Put Is Alive And Well
Remember, in bull markets surprises happen to the upside. This has been our primary thesis since the end of 2012. We would be remiss not to note that this very strong bull market is aging (turning 6 in March 2015 and the last two major bull markets ended shortly after their 5th anniversary; 1994-March 2000 & Oct 2002-Oct 2007). To be clear, the central bank put is very strong and until material damage occurs, the stock market deserves the longer-term bullish benefit of the doubt. As always, keep your losses small and never argue with the tape.