After all was said and done it was another bullish week on Wall Street. The Dow Jones Industrial Average & the benchmark S&P 500 hit fresh record highs on Friday as the bulls continued to buy stocks. The bullish fundamental backdrop continues to be an improving global economy coupled with “easy money” from global 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: Bulls Defend Support
Stocks fell on Monday sending the S&P 500 into its 50 DMA line. The bulls showed up and defended the 50 DMA line which is a healthy event. Greece and Ukraine remained front and center as geopolitical tensions dominated the headlines. On Sunday, Greece’s Prime Minister Alexis Tsipras said he was not a fan of Greece’s austerity program which immediately raised tensions about a Grexit (Greece leaving the Eurozone). Tsipras said he wanted to pursue other options and would look into a bridge loan to cover obligations until June rather than continue with its bailout program. European Commission President Jean-Claude Juncker responded and said the Eurozone would not agree to Greece’s demands. Separately, Ukraine remained a geopolitical hot spot but so far the situation remains relatively contained. Finally, Chinese exports fell 3.3% in January vs. expectations calling for a 5.8% gain.
Thurs & Fri’s Action: Stocks Breakout To New Highs
Stocks raced higher on Thursday after a peace deal was announced in Ukraine. The deal outlined a ceasefire between Ukraine and Russian separatists and allayed concern of a broader escalation which could lead to an all out war. The ceasefire is set to begin on Sunday. Additionally, the IMF offered Ukraine a $40 billion aid package to help stabilize their economy. In other news, Sweden cut its key repo rate to -0.1% from zero and said it would launch a bond buying program. The news sent their currency (Swedish krona) down against the euro and US dollar, while Swedish stocks soared. Economic data in the U.S. was less than stellar. The government said, retail sales slid by -0.8% in January, missing estimates for a -0.4% decline. Excluding autos and gasoline, sales rose 0.2% which also missed estimates. Separately, initial jobless claims rose to 304k, missing estimates for 287k. Stocks hit new record highs on Friday after healthy economic data was released from Europe. German and overall Eurozone GDP did not disappoint which boosted optimism and bodes well for the ongoing recovery. The German Dax surged to new highs after the data was released. Separately, positive rhetoric was announced between the Eurozone and Greece.
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.