Weekly Market Update
The major averages have been up for the last four weeks. The Dow, S&P NASDAQ and Russell 2000 are all coming off an all-time high. This is the best start for stocks in memorable history.
What is driving this?
Earnings – They are good, but guidance is better.
Guidance – Think tax reform!
Economic Data – Think tax reform…
STOCKS
It was a big week for a number of old-school industrial companies reporting earnings. GE, 3M, Caterpillar and United Technologies to name a few, and they were much better than expected. And Netflix, Intel and Verizon – Giddy up!!
The biggest headline for stocks last week had to be the impact of TAX REFORM! Disney is the latest company to add to the list of those passing on the benefits of tax reform. They announced that 125,000 employees will get a bonus thanks to the new tax relief.
ECONOMY
We just keep cooking along…
The most recent read on Q4 GDP puts the economy growing at a decent clip. Now the headline number is not that great, but if you strip out hurricane-related impacts it is quite impressive.
The housing market numbers were a disappointment as inventory levels remain at multi-year lows. New home sales are at even lower levels – they can’t find the land, labor and resources to meet demand.
The index of leading economic indicators continues to signal strength ahead, at a December gain of 0.6%, following upwardly revised gains of 0.5% in November and October’s 1.3% surge that reflected a reversal of hurricane effects.
INTERNATIONAL
Across the pond, we have seen European markets push higher on comments from the ECB and from solid economic growth. In fact, ECB chief Mario Draghi suggests that this momentum could provide some upside surprises.
THIS WEEK
According to Tom Lee at Fundstrat…this parabolic move in the S&P 500 and other major indices have been seen 8 times since 1928, and only 2 times since 1928 has the results turned negative (1929 and 1946). Further, he adds, this implies we could see a 20% rise for the full year…I would say it is too early to call that kind of returns.
If there is anything to derail this rally it could come this week. And a big week it will be…earnings and economic data; first we start out with earnings reports from the big tech names – we will hear from Apple, Amazon, Google, Facebook, and on the economic front we’ll get the latest read on jobs, manufacturing and income & spending.
So, stay tuned and we will bring you up to date next week…
Todd Day, Portfolio Manager
Horizon Financial Services, LLC
January 29, 2018
