Market Record High - S&P 500 Hits A New Record

On Tuesday, the S&P 500 increased 0.88% as earnings have been coming in strong. The close of 2,933.68 surpassed the previous record high set last September. 

As you can see from the chart below, it took 95 days for the market to correct and 120 for it to recover. Because of the way math works, it takes a higher percentage of gains to recover the same nominal amount of losses. 

Usually, when the market falls it goes down quicker than when stocks rise during bull runs. However, the speed of this V-shaped recovery was nearly symmetrical to the decline.

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Nasdaq increased by 1.32% as it was helped by Twitter’s post-earnings rise. Russell 2000 finally outperformed as it increased 1.61%. I still think the Russell 2000 underperforming large caps shouldn’t be used as a negative indicator. I will only use it as an indicator if small caps actually fall like in late 2018 during the mini-bear market. 

VIX fell 1.13% to 12.28%. This helped the CNN fear and greed index hit 75 which is extreme greed. The S&P 500 is up an amazing 17.03% year to date. Even with the stock market being overbought, I can’t short it. Stocks can easily rally if earnings continue to be solid. Technical indicators don’t matter when news is driving stocks.

S&P 500 is now up 3.5% in April which makes it the 2nd best month of the year. This has been one of the best stock market runs I’ve seen in my 12 years of following markets. 

In the past 21 days, the market hasn’t fallen more than 0.55%. 50 of the 77 trading days this year have been positive. 

As you can see from the chart below, this rally has been slightly quicker than the average recovery after a bear market that’s not in a recession. As you can see, the average recovery after a non-recession bear market takes 6.5 months. The recovery in 1998 was much quicker, but that was during the biggest bubble in history.

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Market Record High - Much is being made about this rally not being broad-based. 

Only 50.5% of stocks were above their 10 day moving average after Monday’s close. Even though the S&P 500 hit a record high, only 13 individual stocks hit record highs. I don’t think it’s a problem that only a few stocks are at their record and that about half of stocks are above their 10 day moving average. 

To me, that signals the market has more room to run if anything. As I mentioned previously, this isn’t the time to look at technicals as only earnings season matters for the next 2 weeks.

Best 2 sectors on Tuesday were healthcare and consumer discretionary as they increased 1.59% and 1.22%. You don’t typically see healthcare leading the charge, but it rallied because it has been so oversold. The fact that an oversold sector drove the market to a new high might explain why so few stocks hit a record. I’m bullish on healthcare because I think the fears over Medicare for All are way overblown. 

Politicians rarely get sweeping changes done because most of the same Congressmen and women are in office after election season. Finally, consumer staples was the only sector that fell as it declined 0.12%.

A lot has also been made about the relatively low treasury yields. Even though yields have increased since late March, they are very low. The 10-year yield is only at 2.55% and the 2-year yield is at 2.34%. The bears claim the treasury market isn’t buying what the stock market is selling. I agree. It’s simply factual that the economy is in a slowdown. 

It doesn’t help that global yields have fallen. On the other hand, other economies being weak makes the American stock market look like the best house in a bad neighborhood. With that all being said, I see treasury yields increasing by the end of the year as the economy should exit this slowdown.

Market Record High - Twitter Skyrockets On Great Earnings

On Tuesday, Twitter stock increased 15.71% to the highest point since July 2018. It’s near its first closing day price. It did its IPO in November 2013, meaning this stock has mostly been a loser for almost 6 years. The company doesn’t look like a loser in April 2019 though. It beat adjusted EPS estimates by over double as they were 37 cents instead of 15 cents. The firm reported $787 million in revenue which beat estimates for $776.1 million.

Monthly active users destroyed estimates as they were 330 million which beat estimates for 318 million. Monetizable daily active users (mDAUs) increased from 126 million in Q4 to 134 million. They were 120 million last year. This old social media platform is seeing accelerating user growth on top of solid profit growth. 

Growth came from America and international markets. America had 28 million mDAUs which was up from 26 million last year. There were 105 million mDAUs in international markets compared to 94 million last year.

I love what Twitter has done to clean up the spam and offensive comments on the platform. It is promoting real users every time it improves conversations. Twitter now removes 2.5 times more tweets sharing personal information. About 38% of abusive tweets taken down each week are by machine learning bots. 

This report wasn’t a one-hit wonder. In the past few quarters, the company has turned itself around. It’s a long term buy.

Market Record High - Conclusion

If firms keep reporting great earnings results, the market will keep moving higher even though it is extremely overbought outside of the healthcare sector. 

Don’t fear the warnings of a triple top because stocks won’t fall into a bear market with earnings estimates falling at a slower clip than last quarter. If you use Twitter, you probably have recognized the huge improvement in the service in the past 2 years. Especially after the firm had no direction for most of its lifespan prior to this.