Stocks edged higher during the shortened holiday week and enjoyed their sixth consecutive weekly gain- helping the S&P 500 hit another record high. Over the past month, we have seen a massive coordinated “offensive” from global central banks to help boost both Main St & Wall St. At the end of October, we saw the U.S. Federal Reserve end QE 3. Then almost instantly, we saw the Bank of Japan, The European Central Bank, and China’s Central Bank all step up and announce aggressive measures to join the easy money party. Easy money from global central banks has played a major role in sending stocks higher since the historic March 2009 bottom. The SPX soared when QE has been in effect and fell -17% when QE 1 ended and fell -22% when QE 2 ended. Stocks continue to rally even though QE 3 has ended. The reason is because the QE trade has evolved, like famous investor Mohamed El-Erian so eloquently stated at the end of October. The Fed may have ended QE 3 but they are still adopting an “easy money” stance. Additionally, other central banks around the globe, have joined the easy money party. That’s how the QE trade has “evolved.” Instead of just the Fed printing gobs of money everyday we now have the ECB, BOJ, and the People’s Bank of China all joining the easy money party. So the old Fed Put (the notion that the Fed will step in and save the day if Main St or Wall St weakened), has now shifted to the Central Bank Put and that is a huge bullish fundamental backdrop for stocks.
Monday-Wed’s Action: Stocks Grind Higher Ahead of Thanksgiving
Stocks were quiet on Monday one day after China’s Central Bank lowered rates to help stimulate their economy. Chinese stocks rallied as hope spread that either the rate could would be enough to help the economy will grow on its own (unlikely) or additional stimulative efforts would follow.
Stocks were quiet on Tuesday as investors digested the latest round of economic data. The government released the second estimate for U.S. GDP. The report showed that GDP rose by 3.9% in the third quarter, easily beating the 3.3% estimate. It also beat Q2’s reading of 3.5%. A separate report showed that consumer confidence fell to 88.7 in November from 94.1 in October. In other news, oil prices continued to implode ahead of OPEC’s meeting. The WSJ reported that that Saudi Arabia was going to push OPEC members to more strictly adhere to the current production quota of 30 million barrels per day. That would effectively cut production by about 300,000 barrels, which would not be enough to halt the decline in oil prices.
Stocks closed relatively flat on Wednesday ahead of the Thanksgiving holiday. There were quiet a few economic data points announced on Wednesday- and all missed estimates. The reports included: Personal spending and income, durable and capital goods orders, weekly jobless claims, the Chicago regional manufacturing survey, and home sales data. Chatter spread that the slew of weaker-than-expected economic data will cause economists to lower their fourth quarter GDP forecasts. Severe weather is also contributing to the lower expectations.
Thurs & Fri’s Action: Stocks Trade Near Highs
Stocks were closed on Thursday in observance of the Thanksgiving Holiday. Overseas markets were open and the big news came after the OPEC meeting. Crude oil and gasoline prices were CRUSHED after OPEC decided to not cut production. To be clear, crude oil and gasoline are in a bear market as they both of have plunged nearly 40% from their 2014 highs (hit only a few short months ago). Some are saying that OPEC wants to temporarily send oil prices down to bankrupt (or severely hurt) U.S. Shale producers. People love their conspiracies. U.S. stocks closed early on Friday and as investors waited for the latest reading on Black Friday figures.
Market Outlook: The Central Bank Put Is Alive And Well
Remember, in bull markets surprises happen to the upside. 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 this one weakens, it deserves the bullish benefit of the doubt. As always, keep your losses small and never argue with the tape.