Market at a Glance - 11/21/2019

By: Christopher Mistal

November 21, 2019

Fundamental: Mixed. U.S. labor market remains quite firm with unemployment at just 3.6% and 128,000 net new jobs added in October. A firm labor market should continue to support consumers. Q4 U.S. GDP is not currently looking great. Atlanta Fed’s GDPNow model is forecasting a mere 0.4%. Trade remains unresolved and impeachment hearings are in progress. Q3 corporate earnings and revenue were better than expected suggesting Q4 could still be better than currently anticipated.

Technical: Consolidating. After breaking out to new all-time highs earlier this month, DJIA, S&P 500 and NASDAQ have paused to digest gains and evaluate the latest trade-related headlines. Technical indicators that were at or near overbought levels have begun to ease confirming the pause. The pause/retreat is likely to be brief in duration and magnitude and good be an opportunity to add to existing long positions or to establish new long positions.

Monetary: 1.50-1.75%. The Fed signaled they were most likely done cutting rates (for now). Although they are expanding their balance sheet again (QE4) and stand ready to act further, if needed, to support the economy. According to CME Group FedWatch Tool, there is a 0% probability of a cut at the Fed’s next meeting in December. Nonetheless, rates are low here, even lower elsewhere which has historically been positive for stocks.

Seasonal: Bullish. December is now the number two S&P 500 month and the third best month for DJIA since 1950, averaging gains of 1.5% on each index. It’s the top Russell 2000 (1979) month and third best for NASDAQ (1971) and Russell 1000 (1979). The “January Effect” of small-cap outperformance starts in mid-December. Wall Street’s only “Free Lunch” of distressed small- and micro-cap stocks making new 52-week lows on December Triple-Witching Friday will be served before the opening bell on December 23. Santa’s Rally begins on Tuesday December 24 and lasts until the second trading day of the New Year. In years when Santa Claus did not come to Wall Street, bear markets or sizable corrections have often materialized in the coming year.

Psychological: Holiday cheer. According to Investor’s Intelligence Advisors Sentiment survey bulls are at 57.2%. Correction advisors are at 25.7% and Bearish advisors are 17.1%. Bullish % has actually receded ever so slightly from prior readings but is still elevated. New all-time highs, bullish yearend seasonality and upcoming holidays typically cause high levels of bullish sentiment now and often well into the New Year. Only a major change, sharply higher or lower, would be concerning.