MARKET RECAP

President Trump announced he would impose steep tariffs on steel and aluminum producers worldwide, setting off fears of a trade war. That, coupled with new Fed Chair Jay Powell’s testimony that the economy might be strong enough for four rate hikes this year, instead of the expected three, turned the markets down. US equities declined by 2.02% and international stocks dropped by 2.82%. US equities are now up by a mere 0.72% year-to-date and international equities are in the red by 0.58%.

With markets turning back down, the Bulls hopes of a quick “V” turnaround pattern in stocks is off the table. Now is the time to watch if stocks can hold their lows of a few weeks back.

STEEL TARIFFS

Trump entered dangerous territory announcing punitive tariffs on steelmakers worldwide. Not just countries that are supposedly “dumping” steel, but legitimate steel producers around the globe. History has shown that tariffs have, at times, led to unintended consequences, causing great economic damage to all countries. The threat is Trump just laid the opening shot in what could become a worldwide trade war. If Trump was intent on stopping unfair trade practices in the steel market, he could have targeted specific countries in that regard. Trump is invoking Section 232 of the Trade Expansion Act of 1962, which is a national security act that is supposed to be used only under extreme circumstances when there is a national security threat. That is not the case today. The World Trade Organization (WTO) allows such tariffs in the face of a legitimate national security threat. With Trump’s action, the bar has just been lowered and could easily invite retaliation from other countries impacting many different types of industries.

Adam Posen, president of the Peterson Institution for International Economics, said: “this is fundamentally incompetent, corrupt and misguided.” Steve Liesman, an economist at CNBC, remarked “I am hearing three words, technical terms from economists, bad, stupid, and dangerous. This is seen as one of the worst possible policies that any President could ever enact.”

The reaction to the President’s announcement on Thursday was not good. Steel stocks rose in market value by $2.3 billion but the S&P 500 dropped by $328 billion (see below).

ECONOMY

The February ISM report for manufacturing came in at 60.8. It was the strongest reading since May of 2004. The manufacturing sector is red hot right now. However, reports of new orders declined for the second straight month, a signal that the ISM could be topping out. Initial jobless claims were 221,000. An extremely low number indicating that the job market is still very strong.

The revised estimate for Q4 2017 growth came in at 2.50%, down from 2.60%. Current estimates for the current quarter are still in the 3%+ range according to the Atlanta Fed’s GDPNow and the NY Fed’s NowCast.

POWELL TESTIFIES

New Fed Chair Jerome Powell made his initial testimony on Tuesday in front of the House Financial Services Committee. Powell was optimistic about the economy, explaining we are in a “moment of global growth”.  Due to a tightening labor market, he expects wage increases to pick up.  He is not that concerned about recent volatility in the equity markets and stated that the Fed will continue with gradual increases in interest rates and a decrease in the Fed’s balance sheet. Powell did not comment on the increasing Federal deficit.

SCOREBOARD

HIGHLIGHTS

• Capped by a strong rally on Friday, equities finish higher by about 1/2%.
• Earnings season continues to be exceptionally strong.
• Deficits are exploding and neither political party cares.

MARKET RECAP

It was a somewhat boring week by recent standards, but equities did advance. The US markets were up by about 0.50% and international equities increased by 0.21%. What was of some interest is that the market finished way off its highs, and close to the low of the day, from Monday through Thursday, but that changed on Friday when the market rallied into the close and ended at the day’s high. The Friday rally was attributed to a fall in the yield on the 10-year Treasury of almost 5 basis points. The S&P 500 is now up 8 of the past 10 days and has increased by 6.4% since the February 8 low.

EARNINGS

90% of the S&P 500 have reported Q4 earnings so far and 76.5% have beaten expectations and 15% have fallen short, according to Thomson Reuters I/B/E/S. That compares to the average beat rate of about 64%. Overall, Q4 earnings should be up by 15.3% and revenue should be up by 8.2% from Q4 2016.

The graph below illustrates how earnings expectations for Q4 have been sharply rising since December.

Looking forward, 127 companies projected higher-than-expected earnings for 2018, compared to an average of 49 companies over the last 10-years. The p/e based on 2018 earnings is 17.4.

DEFICIT

The US Treasury sold a whopping $258 billion in bonds this past week. The two-year note went for a yield of 2.25%, the highest since 2008. The supply was absorbed by the market and yields across the curve were flat for the most part. But recent sharp increases in Treasury yields have been anticipating this big increase in supply. The huge auction is just a sign of things to come, and we think a dangerous one at that. Recent tax cuts will increase the deficit by more than $1 trillion over the next decade, and you can add to that the recent budget deal, which will increase the deficit by an estimated $420 billion over that period. And all of that is before the Trump infrastructure plan.

The government is now set to borrow more as a percentage of GDP in the next fiscal year, than any year since 1945. Except in 1945 we were fighting WWII, and today we are amid a relatively strong economy and a tight job market. The deficit, in relation to GDP, should be going down, not up! And what happens during the next recession?

Bond yields tend to trend in one direction for extremely long periods, they can be generational in length. In 1946, the long bond yielded 2.25%, 35-years later in 1981, the yield was 15%. 35-years after that, in July of 2016, the 30-year bond yielded 2.1%. Today, the 30-year is at 3.16%. There is an avalanche of federal debt on the way, plus the unwinding of the Fed’s balance sheet. To state what appears obvious, over time, maybe over very long periods of time (with some interruptions along the way), interest rates will continue higher.

Both political parties are completely ignoring this long-term threat of out of control deficits. At some point, tax increases will be back on the table.

SCOREBOARD

Dan Rusmussen, of Verdad Advisers, talks about the inflated expectations for private equity, and why they might be unrealistic.

https://www.bloomberg.com/news/videos/2018-02-23/verdad-advisers-rasmussen-says-expectations-for-pe-are-crazy-video

MARKET RECAP

Equities turned in their best week since 2013, rising about 4.4%. Some market participants think the correction is over, and it is back to smooth sailing from here. We are not so sure. A recent Goldman Sachs report detailed that a typical correction takes 70 trading days to trough and 88 days to recover.

The markets just completed the longest period ever without a 3% correction. We took a look at how the market performed after the next nine longest periods without a 3% correction, going out 90-days, 180-days and one year, as well as what the maximum drawdown was.

SUBSEQUENT PERFORMANCE OVER 90, 180 AND 365 DAYS

What happens after extended, non-volatile rally ends?

Two of the time periods (C and F above) had losses across the board. The period from April of 1993 until February of 1994 (C), and then the period from June of 1965 until February of 1966 (F).

If you at the percentage gain or loss in 90, 180 and 365 days, and ignore any drawdowns in between, the maximum loss was 10.96% in period F, and that was 180 days after the rally had ended.

In four of the nine examples (B, D, E, and J), the market was up in every time frame measured. The maximum gain was 26.17% one year after the end of rally E.
In two of the examples (H and I), the S&P was down in value 90-days later, but up in the longer time frames of 180-days and one year.

And in the remaining example, G, there was a gain 90-days out but losses at the end of the 180-day and one-year time periods.

The average return over the nine-time periods was -0.63% for the 90-day time-period, 2.91% for 180-days, and 6.34% for 365-days.

The median return was positive across all time frames, 0.76%, 2.04% and 5.90% for 90, 180 and 365 days.

THE END OF THE RALLY LED IMMEDIATELY TO A DECLINE OF 10% OR MORE TWO TIMES 

Of the nine periods, two of them, 1966 and 1950 (F and H), were periods where the end of the rally marked the high point before a decline of 10% or more. In 1966 (F), the S&P sold off by 22%, and in 1950 (H), it declined by 14%. Make that three times as we fell 10% on this most recent decline.

MAXIMUM DRAWDOWN

We also looked at the maximum drawdown over the subsequent 12-month period. The thinking was that maybe the end of the rally does not mark the beginning of an immediate decline, but what if it leads to more volatility which is a tip-off to a larger sell-off at some point in the next 12-months.

The maximum drawdowns averaged -10.61% with a median of -8.94%. The smallest drawdown was 3.55% and the largest was 22.18% over the following 12-months. Thus, in all cases except for one (J), volatility did increase to a certain extent.

CALM BEFORE THE STORM

If there was ever a case of the calm before the storm it was the run that started in July of 2006 and ended in February of 2007. The S&P 500 would move sideways to higher until July by +6.4%, then fall through mid-August by 9.5%, then rally to a new high by 11% into October. That would be the turning point for what would be the bear market of 2007 to 2009. In the one-year after the rally ended in February of 2007, the drawdown was 16.27%, but that was just a hint of what was to come. Ultimately, the market declined between October of 2007 and March of 2009 by 56.30%.

SUMMARY

We looked at nine-time periods and price action over the next year. There is only one period that is similar in length to our current period, and that was the rally from 1994 to 1995 (B). In that case, the market remained positive in the three-subsequent time-frames that we measured. Three other time periods (D, E and J) all had positive returns over 90, 180 and 365 days. Two periods had negative returns over all three-time frames (C and F). In two cases, the end of the rally marked the immediate beginning of significant declines of 10% or more (F and H), including one of 22.18% (F). And then in 2007, the bear market began about 8-months later, but most of the damage was done more than 12-months after the end of the rally.

The sample size is too small draw any definitive conclusions, but there is a definite pick up in volatility after these long rallies end as shown by the drawdown numbers, and there were losses of greater than 10% in three of nine examples.

SCOREBOARD

HIGHLIGHTS

• Stocks fall by about 5%.
• US equities are now down about 2.2% for the year.
• A wild week of trading.
• Everything you need to know about investing on one index card.
• Volatility ETN’s crash.
• Valuations are now somewhat reasonable.
• US deficits are going to begin to ramp up at a time when they should be falling.

MARKET RECAP

The stock market entered correction territory this week as US stocks fell by about 5% and international equities dropped by 5.25%. US equities are now down 2.2% for the year and we are back to where we were at the end of November. The yield curve steepened by 15 basis points as the 2-year note decreased by 10 basis points and the 10-year increased by 5 basis points.

DAY BY DAY

MONDAY

It was a wild week, to put it mildly. On Monday, the SPY (S&P 500 ETF) opened down 0.72%, had a quick rally back to breakeven, and then fell throughout the rest of the day to close with a loss of 4.2% from the Friday close.

TUESDAY

On Tuesday, the market opened down 1.6% and rallied back to close up for the day by 1.97%, that gave some glimmer of hope that the sell-off might be over.

WEDNESDAY

On Wednesday, the market opened down slightly, 0.41%, and then rallied. At the Wednesday high, the SPY was up 1.2%. But from the midday on stocks fell and closed down 0.54%.

THURSDAY

The negative close on Wednesday set up for a really rough Thursday, stocks fell almost the entire day and finished down 3.75%. That put the SPY in correction territory (a decline of 10% or more), down by 10.10% from its January 26th high.

FRIDAY

Friday started out better, opening up by 1.28%, but the market quickly turned south and at its low, the SPY was at 252.92, that was about at 1:45 pm. And at that point, the index was down 11.75% from the January 26th closing high. The price also fell just below the 200-day moving average, a key technical level that many traders watch to judge the broad direction of the market (as in up or down). But stocks had a huge rally from that point and managed to close up by 1.5% for the day, an increase of 3.39% from the day’s low.

For the week, the SPY fell by 5.06%.

INVESTMENT ADVICE ON AN INDEX CARD

We asked in our commentary for the week ending January 26th, if this was 1987 all over again? The “effortless ease” in which the market was constantly going up reminded us of the 1987 market. That led to complacency and lots of one-way bets on low volatility and a belief that stocks would go up forever. But markets don’t work that way. Over time, they generally go up as the economy grows, but in between, there are often sell-offs, and sometimes they can be severe (much more than we have seen so far over the last week or so). The index card below, which has been floating around Twitter, kind of sums it up!

VOLATILITY

The one-way bets are perhaps best shown in the crash of the XIV. The XIV is an exchange-traded note (ETN) that essentially benefits from markets with low volatility. Low volatility was what we just came out of, we just went the through the longest period ever without a 3% correction and came up just short of the longest period ever without a 5% correction. From December 31, 2016, through its high on January 11 of this year, the XIV was up by 210%, closing at $145. On Friday, the XIV closed at $5.38, a loss of 96.3%. Just this past week, it fell 96.1%. The XIV, and volatility related products like it, are taking the blame for a lot of the market’s fall this week. Traders getting out of the XIV trade supposedly spilled over into selling equities. We wrote about the threat of this on October 15.

CATALYSTS FOR THE SELL-OFF

As we see it, here are the catalysts for this sell-off:

• Overdue for a correction, this set up complacency and one-sided bets on the market moving higher.
• The threat of higher inflation, triggered by the increase in hourly wages on February 2.
• The Fed beginning to unwind the balance sheet, a slow movement from quantitative easing to quantitative tightening.
• Ballooning deficits at a time when deficits should be decreasing (see below).

VALUATION

If there is any good news, it is that all of a sudden, market valuations have become much more reasonable. A combination of falling stock prices and higher earnings have the current forward p/e at about 16.9, as of the Friday close, a level not seen since 2016.

The Morningstar measure of the median fair value of stocks that it analyzes, was as high as 1.11 recently, indicating the median stock was overvalued by 11%. Today, the ratio is 0.99, indicating the median stock is now undervalued by 1%!

IT’S A GOOD ECONOMY THAT THREATENS THIS MARKET

A distinguishing characteristic of this correction, compared to all of the others since 2007, is that the primary fear is not an economic downturn, but an accelerating economy that unleashes inflation and leads to higher interest rates, although you can make the case that such a scenario would lead to a downturn at a future point. But for now, the economy continues to look very strong. The most recent estimates of growth for Q1 from the Atlanta Fed’s GDPNow model are 4.00% and from the New York Fed’s NowCast is 3.35%. Those estimates can certainly change, but for now they indicate accelerating growth for this quarter.

DEFICITS

One area that does have us concerned over the long run is the complete disregard by our government in dealing with our budget deficit. The recent tax cuts will add an estimated $1 trillion or so in deficits over the next 10-years. And as if that wasn’t enough, a spending bill passed this week, as part of the legislation to keep the government funded, adds an additional $300 billion in deficit spending. And almost nobody in Congress cares, and the White House certainly doesn’t.

SCOREBOARD

HIGHLIGHTS

• The markets took a tumble as US and international stocks fell by about 4%.
• Interest rates moved significantly higher.
• The sell-off has been way overdue.
• A strong jobs report shows the economy is in good shape.
• And earnings estimates continue to be high.

MARKET RECAP

The equity markets took a tumble around the world. US stocks dropped by 3.88% on the week and international stocks fell by 4.04%. The longest streak of all-time without a 3% sell-off ended at 448 calendar days.

Fast increasing interest rates put an end to the rally. The 10-year treasury bond now yields 2.78%, the most since January of 2014. The 30-year cracked the 3% barrier, closing at 3.01% on Friday.

Higher interest rates are having a gravitational pull on the price/earnings ratio, bringing it down. The problem is not earnings, earnings estimates continue to be strong. It is the amount that investors are willing to pay for those earnings have declined, resulting in the sell-off

Why are interest rates going higher? Ironically good news in the economy means higher wages which translates into higher inflation. The worst day of the week was on Friday after a strong jobs report that showed the biggest increase in wages since June of 2009 (see below). In other words, the good economic news was bad market news.

There is also the impact of the unwinding of the balance sheet. As the Fed lets bonds mature, it is effectively taking money out of the system. That means less demand for bonds which requires higher rates to entice investors.

There are other forces at play also. The biggest one might be that we were just due for a sell-off. Not just due, but way overdue. It has now been 585 calendar days since the last 5% sell-off. That is just 8-days shy of the all-time record which occurred between December of 1957 and August of 1959. There was also extreme positive sentiment in the market. Volatility has been at all-time lows, indicating almost no fear of a sell-off.

And then you have the political mess in Washington. Investors and traders simply ignored our dysfunctional political system while the market was in a one-way mode up, but that will be harder now. The release of the Republican memo alleging surveillance abuse, despite the objections of the Justice Department and the FBI, indicate that our political mess is getting worse, not better. And let’s not forget that the government has until Thursday to continue to fund the government before the next shutdown.

So, we have what is likely the beginning of some kind of sell-off. Whether it ends on Monday or continues on for a while we have no way of knowing, but we suspect it will go somewhat deeper. This is part of normal market behavior. There is no sign, at least now, of a recession soon, and the economy and earnings estimates are solid.

JOBS

Nonfarm payroll increased by 200,000, the preceding two months were revised downward by 24,000. Average hourly earnings were up by 0.3% month over month and 2.9% year over year. That was this biggest increase since June of 2009 and might have led to higher inflation fears that spooked the market during Friday’s selloff. The average workweek fell to 34.3 from 34.5 hours. The unemployment rate remains at 4.1%.

GLOBAL ECONOMY

The global economy continues to be in solid shape. The manufacturing PMI came in at 54.4, down 0.1 point, but a strong number. Anything above 50 is considered expansionary. 94% of countries are in expansion territory, close to the November high. But it appears that growth in PMI is leveling off.

HEALTHCARE ALLIANCE

Amazon, JP Morgan, and Berkshire Hathaway announced they would join forces to try to tackle the problem of healthcare costs.

SCOREBOARD

HIGHLIGHTS

• US and international equities advance by just over 2%.
• The first official GDP estimate of Q4 growth comes in at 2.6%.
• Some comparisons to 1987.
• Retail investors getting back into the market.
• Government shutdown ends (until February 8).
• Trump imposes tariffs.

MARKET RECAP

Equities continued to ramp higher, up just over 2% in the US and around the world. Bonds managed a 0.18% advance. The dollar fell by 1.70% on comments by Treasury Secretary Mnuchin that a lower dollar would help US exports. The dollar is down 3.81% for the month.

GDP

The first official estimate for Q4 growth came in a 2.6%, significantly lower than the GDPNow estimate of 3.40% and the NowCast estimate of 3.88%. The estimate is subject to future revisions, but if it holds it stops the two-quarter plus 3% streak and keeps growth in-line with the pattern we saw under Obama.

1987 ALL OVER AGAIN?

This is in no way a prediction that this year will turn out like October of 1987, when the market crashed by 32%, but the consistent rise in the markets brings back some memories from the first few months of 1987. Here are some common themes as we read through past issues of Barron’s:

• Equities are heading higher, but experts think that “bullishness is not out of control.” (Barron’s 2/9/1987)
• The Dow doubles without even one 10% correction.
• Aggressive “high-yield” lending.
• Equities have gone up while the dollar was going down.
• Equities increasing with “effortless ease”. (Barron’s 3/2/1987)

RETAIL INVESTORS

Discount brokerages like TD and Schwab reported a jump in new retail clients to close out 2017. Lisa Beilfuss writes in Saturday’s WSJ that the strong trading activity suggests “…the market rally is entering a “melt-up” stage that is bringing in once-skeptical investors.” (WSJ, 1/27/2018, Retail Investors Jump Into the Market)

SHUTDOWN

The government shutdown ended late Monday when Congress passed a continuing resolution to keep the government funded through February 8.

TARIFFS

Trump imposed tariffs and quotas on imports of solar panels and washing machines. The tariffs will impact China and South Korea. More US companies are now expected to seek protection. A case is likely to be brought to the World Trade Organization. If this is the start of the roll-out of the Trump protectionist agenda, slower economic growth, inflation and a hit to equity markets all now become heightened risks. Meanwhile, the rest of the world goes on in promoting free trade, 11 Pacific-rim countries agreed to form a trade bloc without the US.

SCOREBOARD

HIGHLIGHTS

• Another week, another record, in both the US and around the world.
• The ten-year treasury continues its march higher.
• Senators are racing to complete a deal to avoid a government shutdown.
• The economy continues to look strong.

MARKET RECAP

Another week, another record. Both the overall US stock market and the S&P 500 closed at all-time highs, up by 0.82% and 0.90%, respectively. International stocks also closed at a record, +0.93%.

Interest rates were up across the board, that dropped bonds by 0.51%. The 10-year treasury bond has been ramping higher along with stocks, closing the week with a yield of 2.64%, the highest level since July of 2014. The 10-year 2-year yield curve has steepened by 7 basis points so far this month. Part of the jump in yields was due to faster economic growth in China. Chinese growth of 6.9% was the fastest in two years. The 10-Year Chinese bond yield went above 4% for the first time in four years. Faster growth in China should be positive for commodities.

While equities have been rallying, the US dollar has been falling, it is off 1.71% year to date. That is a big drop. While investors here in the US are thrilled with the performance of the US stock market, investors in Europe aren’t. A European investor would be down about 3% over the last two weeks if they owned US stocks in euros, due to the lower dollar.

SHUTDOWN

A group of moderate Senators were racing Sunday evening to avoid a shutdown of the government on Monday.  We didn’t know there were any moderate politicians left, but we hope they succeed. The fact that there was no agreement going into the weekend did not disturb the markets at all. That pretty much sums up the “market think” these days, simply oblivious to the mayhem in Washington and around the world and only concentrating on strong corporate profits and momentum in equities.

ECONOMY

The economy continues to look strong. The GDPNow model has Q4 2017 growth estimated at 3.40%. And the NowCast model has Q1 2018 growth estimated at 3.07%.

SCOREBOARD

HIGHLIGHTS

• Stocks were up by 1.65% for the week and 4.14% for the year.
• Interest rates increased across the board, the 2-year is at 1.99%, yielding more than equities.
• Market bulls are counting on big earnings increases and a stable p/e ratio.
• GDP estimates are above 3% for Q4 and Q1, indicating strong growth.

MARKET RECAP

What many are describing as a “melt-up” continued on Wall Street, as US equities increased by 1.65%. The market is now up 4.14% after nine trading days and has advanced eight out of nine times. The one loss for the year was on Wednesday when stocks dropped a mighty 0.16%. International stocks were up 1.30% for the week and are up 4.58% for the year. The dollar declined by 1.06% and crude oil increased by 4.65%.

We had described a few times last year the market’s stairstep pattern of increases. Basically, stocks would consolidate and then advance, and repeat the pattern. Since mid-November, the stairsteps have been replaced by an accelerating angle higher.

Meanwhile, interest rates are increasing across the board. The two-year treasury closed the week yielding 1.99%, more than the yield on US stocks (about 1.80%). It was just recently that stocks were yielding more than the 10-year, now they yield less than the two-year.

Stock market bulls are banking on big earnings increases and a stable price/earnings (p/e) ratio. The earnings estimate for 2017 for the S&P 500 is $131.48 per Thomson Reuters I/B/E/S. For 2018, helped by tax cuts, earnings are estimated to come in at $150.15, an increase of 14.2%. 2019 estimates are for $166, an increase of 10.6%. These are optimistic numbers. The problem is that if interest rates continue to increase, there will be a gravitational pull for the p/e ratio to decline, which will offset to some degree the higher earnings. And then, of course, the higher earnings have to actually come through.

ECONOMY

The GDPNow estimate for 2017 Q4 growth increased by 1/2% on a strong retail sales report. The estimate is now at 3.3%, up from 2.8%. The NY Fed Nowcast has growth estimated at 3.88% for Q4 and 3.21% for Q1.

The Consumer Price Index rose by 0.1% in December. Core CPI was up 0.3%, the most since last January. Most of that increase was due to an increase in the cost of shelter. Year over year the index is up 2.1%.

SCOREBOARD

HIGHLIGHTS

• Markets burst higher.
• Equities might be in a “blow-off or melt-up” phase.
• Technical indicators show an overbought condition rivaling the mid-80s and late 90s.
• Solid labor market conditions.

MARKET RECAP

Stocks burst out of the gate to start 2018 as US equities increased by 2.27% and international equities were up 3.24%. It was the best opening week since 2003. The Dow broke through the 25,000 mark. It took only 24 trading days from when the index cracked 24,000. Of course, moving a thousand Dow points is not what it used to be, at least in percentage terms, but remarkable nonetheless.

Synchronized economic growth around the world, lower US taxes, improving corporate earnings, low inflation, low-interest rates, and investor enthusiasm has created a powerful mix that pushes the market up and up despite valuations getting to historically high levels.

Noted investor and market historian Jeremy Grantham summed it up in his recent piece, “I recognize…that this is one of the highest-priced markets in U.S. history. On the other hand, as a historian of the great equity bubbles, I also recognize that we are currently showing signs of entering the blow-off or melt-up phase of this very long bull market.”

In other words, there might be a lot more to run in this bull market, but at some future point, valuations will begin to revert to their mean, or worse.

OVERBOUGHT MARKET

Looking at some technical indicators, the market is overbought. The Wilder’s Relative Strength Index takes a measurement of the speed and change of price movements over a period of time. A measure over 70 is considered overbought. A monthly chart of the S&P 500 and the Wilder’s Relative Strength Index over a period of 21 months, dating back to 1985, shows an overbought condition comparable to 1986-1987 and the late 1990s. Both periods were followed by bear markets. It is important to note that the oversold condition in the 1990s started about 5-years before the bear market of 2000.

We are not anticipating a bear market in the very near term. Economic conditions in the US appear solid, earnings are increasing and there is worldwide growth. You can often find many indicators that will tell you why the market will crash tomorrow, but the market is overbought here from a technical perspective.

ECONOMY

The Atlanta Fed’s GDPNow has Q4 growth estimated at 2.7% and the NY Fed’s Nowcast is at a very strong 3.97%.

Nonfarm payrolls were up by 148,000 in December, lower than recent months. The unemployment rate remained the same at 4.1% and the average workweek also stayed the same at 34.5 hours. Average hourly earnings were up 2.5% year over year. Overall, tight conditions continue to prevail in the labor market.

SCOREBOARD