Is the Bull Running on Tired Legs?

The major market indices finished the holiday shortened week higher on signs of progress in the US/China trade talks and a reiteration by the Federal Reserve that it will continue to be “patient” with future rate hikes.

February 25, 2019    |    By Mike Schwager

Performance for Week Ending 2/22/2019:

The Dow Jones Industrial Average (Dow) added 0.57%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) gained 0.63%, the Standard & Poor’s 500 Index (S&P 500) rose by 0.61% and the Nasdaq Composite Index (NASDAQ) tacked on 0.74%. Sector breadth was positive with 9 of the 11 S&P sector groups finishing higher. The Utilities sector (+2.36%) was the best performer followed by Materials (+2.27%) and Technology (+1.39%).

Index* Closing Price 2/22/2019 Percentage Change for Week Ending 2/22/2019 Year-to-Date Percentage Change Through 2/22/2019
Dow 26031.81 +0.57% +11.59%
Wilshire 5000 28986.35 +0.63% +12.57%
S&P 500 2792.67 +0.61% +11.40%
NASDAQ 7527.55 +0.74% +13.45%

*See below for Index Definitions

MARKET OBSERVATIONS: 2/18/2019 – 2/22/2019

The major market indices finished the holiday shortened week higher on signs of progress in the US/China trade talks and a reiteration by the Federal Reserve that it will continue to be “patient” with future rate hikes. The favorable news on trade and monetary policy helped offset a batch of economic data that suggested a softening in economic growth.

The strong market performance over the past eight weeks has resulted in a rerating higher in the markets valuation multiple and a strong rebound in bullish investor sentiment (a contrarian indicator). Arguably a lot of the good news surrounding the trade issues and the Fed’s dovish pivot has already been discounted in the market, and therefore a period of near-term consolidation seems plausible. In other words, the market seems vulnerable to inevitable suction of gravity. If we were to see a pullback in the coming weeks, it would be viewed as a healthy sign and likely set the stage for the next leg higher.

Trade: Following the prior week’s meeting in Beijing, a group of Chinese officials traveled to Washington last week in an effort to hash out a trade deal framework ahead of the self-imposed March 1 deadline. According to media reports, significant progress was made between the two sides, with the very real possibility that the March 1 deadline could be extended. Earlier in the week, President Trump told reports in Washington that the midnight March 1 deadline was not a "magical" date and could be extended.

Fed Meeting Minutes: The Federal Reserve released the minutes from the January Federal Open Market Committee last Wednesday and they seemed to have a little something for both bulls and bears alike. As generally expected, the central bank reiterated its aim to be more "patient" on future hikes while still leaving room to take lending rates higher later in the year. According to the minutes, the decision to adopt a more patient stance came in response to the weakness in global economic growth, particularly Europe and China, the tightening in US financial conditions and, at the same time, an easing in inflationary pressure. The minutes also provide more clarity on the rising possibility that the Fed will halt its balance sheet run-down sometime in the second half of this year, stating "almost all participants thought that it would be desirable to announce before too long a plan to stop reducing the Federal Reserve’s asset holdings later this year." In terms of the latter statement, most economists are expecting to the Fed to provide greater clarity on the balance sheet at the conclusion of the March 20 FOMC meeting.

Q4 Earnings Tracker: Through Friday, 447 members of the S&P 500 have released results with just over 70% surprising to the upside. Aggregate earnings growth is running at just under 11%, leaving the S&P 500 on track to post its fifth consecutive quarter of double-digit growth. While the pace of growth has certainly moderated from recent quarters, it still remains solidly in positive territory and certainly better than feared heading into the quarter.

Outlook: We maintain a bullish tilt towards the market and continue to believe there is money to be made over the coming quarters. However, the strong start to the year has led to overbought conditions and a period of near-term market consolidation would not be surprising. Our view is that as long as the economy and earnings continue to grow – which remains our base-case scenario—equity prices should ultimately follow suit.

The Week Ahead: The focal point of the coming week will be Fed Chairman Powell’s semiannual testimony to Congress on Tuesday and Wednesday. While Powell is not expected to break new grounds, investors will monitor his tone and listen for an underscoring that the Fed will remain patient in its rate hiking campaign. Earnings season will continue to wind down with 37 members of the S&P 500 scheduled to release results. It will be a busy week on the data front with housing and manufacturing in the spotlight. Reports of interest include; December housing starts/building permits, the December Case-Shiller home price index, the Conference Board’s February consumer confidence survey, December factory orders, January pending home sales, the initial estimate of fourth-quarter GDP, the February Chicago Purchasing Managers’ Index, December personal income and spending, the February Institute for Supply Management (ISM) manufacturing index and the University of Michigan’s February consumer sentiment survey. Other events of interest include the second US/North Korea summit and potentially the release of the long-awaited report from Robert Mueller into links between the Trump administration and Russia.


The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

Wilshire 5000 Total Market IndexSM represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. The index is comprised of virtually every stock that: the firm's headquarters are based in the U.S.; the stock is actively traded on a U.S. exchange; the stock has widely available pricing information (this disqualifies bulletin board, or over-the-counter stocks). The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index.

Standard and Poor's 500© Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.

This material contains opinions of the author, but not necessarily those of Guggenheim Partners, LLC or its subsidiaries. The opinions contained herein are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. Past performance is not indicative of future results. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information. No part of this material may be reproduced or referred to in any form, without express written permission of Guggenheim Partners, LLC.

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