It has been 1 month since our latest market blog post. Since then we have seen the SP500 trickle another roughly 2% higher bouncing around with headlines on trade and continued commentaries from Fed Reserve Chairman, Jerome Powell. While no one can pinpoint exactly how much fuel the FOMO trade may provide, a few things are making themselves apparent:
1) We have not seen this level of decreased volatility in the markets since the last days of September 2018, which was followed promptly by the start of the violent correction the first week of October.
2) Several times per week, if not almost daily, some headlines make their way out of the White House on the US-China trade negotiations. In the short weeks after Christmas, these headlines once provided robust buying sprees in the market; however, these upward pressures seem to be waning as the positive impact of a trade deal slowly seems baked into the current market environment. While speculations have been made about how 'good' or 'strong' the trade deal may be, it feels the greater risk is currently to the downside. In other words the markets are pricing in the positive news on trade, while ignoring the risks of a 'no deal' or the President walking away from the table completely.
3) The tail end of earnings season is here, and most 2019 guidance numbers are in. On average, we are seeing a slight reduction in 2019 earnings growth projections for companies in the SP500. Regardless of the declining earnings outlook markets have trickled higher throughout earnings season this last month, but we believe this can be attributed to the oversold conditions of Christmas Eve rather than renewed optimism for strong market growth.
4) Because the markets have gained more ground than technical minds projected, it is now reasonable to think that should the markets finally correct course, a re-test of the 2018 lows might not be necessary. Instead, a consolidation down towards the 50 or 100 day moving averages on the SP500 would be a healthy step back for a market that has run up nearly 20% in just over 2 months. These retracement levels would align between 2650 and 2700 on the index.