Stocks continued to rally last week, helping the small cap Russell 2000 to jump to fresh record highs. On Christmas day, China’s central bank eased lending requirements which was viewed as another (bullish) step to stimulate their economy. The big news last week came from the natural gas market, not the stock market. Natural gas prices plunged precipitously last week and now join other energy markets (crude/brent oil, and RBOB gasoline) in steep bear markets. Energy prices have been plunging since Crimea seceded from Ukraine earlier this year. Call it what you will a political ploy or just normal market forces, we just highlight the facts and let you decide. We do not buy into conspiracy theories but are cognizant of various “forces” when they are at the fore.
Monday-Wed’s Action: Global Central Banks Continue To Help
Stocks rallied on Monday as oil and gold remained weak and the US dollar continued to race higher. Interestingly, biotech stocks (one of the strongest groups of the past few years) fell hard on Monday. The iShares Nasdaq Biotechnology ETF (symbol: IBB) fell 2.6% on Monday but still gained +39.7% in 2014 (as of Monday’s close). Economic data was light, November Existing Home sales came in at 4.93 million, missing estimates for 5.2 million. Initially, housing stocks fell on the news but recovered their losses into the close. In other news, the Chicago Fed National Activity Index was 0.73 in November, topping estimates for 0.25.
Stocks rose on Tuesday helping the Dow Jones Industrial Average top 18,000 for the first time in history. While on this headline-rich subject, it is important to note that the Dow is only 11% below 20,000. The big headline came before Tuesday’s open when the government said the U.S. economy grew by 5%, which topped the 4.3% forecast. The stronger-than-expected reading also helped reaffirm the Fed’s stance that the economy is improving and it was right for them to end QE 3 in October. The stronger than expected reading sent the US dollar higher and a basket of commodities lower. In other news, Durable goods orders fell -0.7% in November, missing estimates for a gain of +2.7%. Excluding transportation, durable goods orders slid 0.4%, also missing estimates for a decline of 1.0%. The October Housing Price Index from the FHFA grew by +0.6%, which followed an unchanged reading in September. A separate report showed that new home sales hit an annualized rate of 438k, in November which missed estimates of 460k. Another report released from the University of Michigan that looks at consumer sentiment was virtually unchanged at 93.6 (from 93.8) in the final December reading, which barely missed estimates. The December sentiment reading marked the highest point since January 2007.
Stocks closed early on Christmas Eve. It was a relatively quiet session, stocks rallied for most of the day but slid in the final hour of the shortened session. Biotech stocks rallied after Gilead (GILD) faced a price scare earlier in the week. Weekly jobless claims came in at 280k, beating the 290k consensus.
Thurs & Fri’s Action: Small Caps Breakout
Stocks in the U.S. were closed on Thursday in observance of the Christmas holiday. China’s central bank made headlines when they took another “measured” step to stimulate their economy. Stocks rallied on the heals of China’s “measured” step and the action helped the Small Cap Russell 2000 breakout of its current base and hit new record highs. Remember in October, the Russell 2000 broke down below support of this large pattern and then the breakdown was quickly negated and is now breaking out to new highs. The key is to see if this breakout “works” or if it rolls over and is negated. At this point, we are in a strong uptrend and the path of least resistance is higher, not lower.
Market Outlook: The Central Bank Put Is Alive And Well
Remember, in bull markets surprises happen to the upside. This has been the primary theme for the last 18 months. Keep in mind that the bull market is aging (turned 5 in March 2014 and the last two major bull markets ended shortly after their 5th anniversary; 1994-March 2000 & Oct 2002-Oct 2007). Until material damage occurs, this market deserves the longer-term bullish benefit of the doubt. As always, keep your losses small and never argue with the tape.