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Earnings Recession Ends

The S&P 500, Nasdaq Composite, and the Nasdaq 100 vaulted to fresh record highs last week as the Dow Industrials, Midcaps, and Small-Cap Russell 2000 are still perched below their respective highs. The market continues acting very well as the earnings recession appears to be close to over and that bodes well for the market. The last earnings recession was in 2014-2015 and when it ended in early 2016 the market broke out of a multi-year base and ripped higher. That could easily happen again. Additionally, the Fed has cut rates several times over the past few months which is very bullish for the market. In the short term, the market is extended and due to pullback but the fact that the market is breaking out bodes very well for the major indices in the longer-term.

Monday-Wednesday’s Action:

On Monday, stocks rallied thanks to the latest round of earnings data and progress on the U.S.-China trade front. The benchmark S&P 500 jumped to a fresh record high which bodes well for the other indices. President Trump tweeted, “The S&P just hit an ALL-TIME HIGH. This is a big win for jobs, 401-K’s, and, frankly, EVERYONE! Our Country is doing great. Even killed long-sought ISIS murderer, Al-Baghdadi. We are stronger than ever before, with GREAT upward potential. Enjoy!” Walgreens Boots Alliance, AT&T, and Spotify are among the companies that reported stronger-than-forecast profits on Monday. Stocks were quiet on Tuesday as investors digested round of earnings. Google fell after reporting earnings and Beyond Meat plunged 20% it reported earnings. On Wednesday, the government said GDP rose by +1.9%, beating estimates for +1.6%. Then, the Fed concluded its 2-day meeting and cut rates for a third time by 25 basis points and said it is ready to hold off for a while. Separately, ADP said U.S. private payrolls rose by 125,000 in October, beating estimates for 100,000. However, September payrolls fell by 42,000 to 93,000.

Thursday & Friday Action:

Stocks fell on Thursday after a report from Bloomberg News said some Chinese officials have been casting doubt over the possibility of a long-term trade deal with the U.S. The report added Chinese officials are concerned about President Donald Trump’s “impulsive nature” and the risk of him backing out of any kind of deal. In other news the House formalized impeachment proceedings with a 232-196 vote. Stocks rallied nicely on Friday ending the week on a positive note after the government reported a stronger than expected jobs report. The government said that there were +125,000 new jobs in October, beating estimates for +100,000. The report also showed that September’s payrolls slid by 42,000 to 93,000.

Market Outlook: Easy Money Is Back

Once again, global central banks are back on the easy money bandwagon after the Fed and the ECB both announced more easy money measures directly aimed at stimulating global 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 are moving in the right direction which is another positive. As always, keep your losses small and never argue with the tape.