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Market Flirts With Record Highs

The market rallied nicely last week after more easy money was announced and both the U.S. and China played nice regarding the ongoing trade spat. In the short-term, the major indices are very extended to the upside and are overdue to pullback. Near term, support is the 50 day moving average for the major indices and as long as the market stays above that level the bulls remain in clear control. Beyond that, keep in mind, the Fed meeting is around the corner and then we are heading into the end of the month – and – the end of the quarter which could easily translate into a nice upward bias. 

Monday-Wednesday’s Action:

Stocks opened higher on Monday but closed mixed to mostly lower as the market pulled back to digest the recent (and robust) rally. Treasury Secretary Steven Mnuchin said Monday morning that China and the U.S. have a “conceptual agreement” on enforcement mechanisms around intellectual property theft, one of the more contentious negotiation points between the two countries which is another welcome sign that next month’s “talks” may actually move the needle. On Tuesday, stocks slid but buyers showed up near the 50 DMA line (support) which is a near term healthy sign. Wednesday marked the 18th Anniversary of 9/11 and the market responded as it normally does no 9/11 with a nice rally. If you look back them market has been up on just about every 9/11 since 2002. Wednesday’s rally was attributed to the fact that the bulls showed up and defended support near the 50 DMA line for the major indices. Separately, President Trump pushed the tariffs back two weeks and then China responded and eased some of its trade restrictions on U.S. agricultural goods and that helped the market take a breath. It was the first sign of de-escalation in a very long time. 

Thursday & Friday Action:

On Thursday, stocks ended higher after the ECB concluded its latest meeting and added more easy money to the party. That helped the market come within striking distance of a fresh record high. Stocks were relatively quiet on Friday as investors wrapped up a strong week.

Market Outlook: Easy Money Is Back

Once again, global central banks showed up and juiced markets and that was confirmed when the ECB announced more easy money measures. Before, that, James Bullard, who serves as a proxy for Jay Powell, came out and gave dovish comments which also boosted markets. The market has soared all year based on two key points: optimism that a trade deal will be reached between the U.S. and China and more easy money from global central banks. Earlier this year, the Federal Reserve reversed its stance and moved back into the easy money camp. Then, other central banks followed suit and that means easy money is back to being front and center for the market. Separately, the trade talks look to be on the mend. As always, keep your losses small and never argue with the tape.