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THIS WEEK'S UPDATE

| January 14, 2020
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THE WEEK ON WALL STREET
The market had a choppy five days, with traders reacting to geopolitical developments and weaker-than-expected jobs data. Even so, the three major U.S. equity indices posted weekly gains and continued their strong start to the new year. During Friday’s trading session, the Dow Jones Industrial Average topped 29,000 for the first time.  Rising 1.75% for the week, the Nasdaq Composite outgained both the Dow (up 0.66%) and the S&P 500 (up 0.94%). The story for foreign stocks was different: the MSCI EAFE index declined 0.30%.
   
HOLIDAY HIRING NUMBERS
Wall Street was unimpressed by the latest jobs report from the Department of Labor. Employers added 145,000 net new workers in December; economists surveyed by Dow Jones had forecast a gain of 160,000. Wages grew less than 3% year-over-year for the first time in 17 months.  Unemployment remained at a 50-year low of 3.5%, however. The broader U-6 jobless rate, which also includes the underemployed, decreased to 6.7%, the lowest in 26 years of recordkeeping.
  
OIL PRICES DECLINE
The rally in crude oil spurred by strained U.S.-Iran relations ebbed this past week. At Friday’s closing bell, WTI crude was worth $59.04 a barrel on the New York Mercantile Exchange, down 6.36% for the week and 3.31% year-to-date.
 
BOTTOM LINE, LOOKING AHEAD
A new earnings season starts Tuesday, with big banks leading off and reporting fourth-quarter results. Chinese Vice Premier Liu He will be in Washington, D.C., through Wednesday, and during his visit, he and President Trump are expected to sign the phase-one trade deal between the U.S. and China.
 
I’ve always thought ‘Melt Up’ was a silly term. Nevertheless, it appears to be applicable.  By all measures my typical measures this market is overbought.  The S&P500 is nearly two standard deviations above the monthly pricing average (and has been such for several days now).
 
Of course, there is an end. It may be just over the horizon. It’s just tricky to see in these conditions.  With the DJIA breaking through 29,000, there’s a general wave of optimism. A China trade deal?  Optimism.  And impeachment?  Who cares?… The markets seem to have their eye on the ball right now.
 
Washington is a sideshow.  Trade, while an issue, seems largely priced into expectations.  So bad news is no news, and good news is worth pushing this market even higher.  Every pull-back so far is met with buyers who want to get into the party.
 
Let’s be clear: this won’t go on forever. From a technical perspective, the market is climbing into rarefied air.  Trying to peg numbers is a pretty exotic extrapolation. In fact, this market seems to be looking for any almost reason to move higher. It would be a major concern if it weren’t for the general feelings of pessimism that still seem to be the flavor of the day. (Right about the time everyone feels pretty good about things should be the time we really start to worry)
 
Earnings season may begin to shift sentiment. It seems as if this market is looking at earnings over a year out. As long as the global growth figures continue to climb, and the Fed shows no signs of changing policy, the melt up has a good chance of continuing.

Have a good week!

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