After The Best January For Stocks In 30 Years, Two Different Views On What’s Next
After the best January for stocks in 32 years, the ‘millionaire’ question is — is this the resumption of the bull market we’ve been in for several years; or, are we due to re-test the December 2018 lows. As you might expect, there is both a bull, and a bear case. Akane Otani has an article in this morning’s (Feb. 4, 2019) Wall Street Journal (WSJ) “Bonds Signal Warnings For Stocks,” warning investors that trouble lies ahead for stocks.Mr. Otani begins, “U.S. stocks and bonds are rallying together, an atypical pattern that some investors worry suggests the January rebound in equities is fated to run up against a painful reversal.”
Mr. Otani notes that “yields on both shorter, and longer-term government debt have continued a months-long slide, a development that has historically signaled growing pessimism about the outlook for the U.S. economy. The yield on the 10-year Treasury note, used as a reference for everything from mortgage rates to student loans, has fallen for three consecutive months. That marks its longest streak of monthly declines since the summer of 2015, when fears that an economic slowdown in China would ripple across the globe sent U.S. stocks tumbling,” he wrote.
“There is obviously a separation between where the equity market sees the world, and where the bond market sees the world,” said Kevin Giddis, head of fixed income capital markets at investment bank, Raymond James. “The risk investors face,” Mr. Otani writes, “is the possibility that when the two markets’ viewpoints converge, stocks will get hit with a fresh wave of volatility.”
“The question for the stock market is, are we bouncing back from oversold levels in December, or is it in an actual rally?” said Darrell Cronk, President of Wells Fargo Investment Institute. Mr, Cronk told the WSJ that his firm had recently trimmed its exposure to small caps, after deciding their 11 percent January gain had made valuations look “a little rich,”
Having said that, Mr. Cronk cited the Federal Rexerve’s dovish stance towards additional interest rate hikes is a tailwind for stocks; and, told the WSJ that “I think we’ve got a really good environment for markets right now.”
So, despite Mr. Otani’s headline, his article ends on a bullish outlook for stocks from Wells Fargo
Stock Market Rally Shifts Into New Bullish Phase
The title directly above comes from Ed Carson’s article he posted to this morning’s edition of Investor’s Business Daily (IBD). I refer you to IBD and Mr. Carson’s article for the full details. He notes that “a growing number of top stocks have broken out into buy zones, including Boeing (BA), Salesforce.com (CRM), Xilinx (XLNX), Mastercard (MA), and Workday (WDAY). Mr Carson’s bottom line: “the current stock market rally has shifted into a new phase – a tradable rally for top stocks — but also be nimble.”
Mr, Carson/IBD also highlighted “Top Stocks Near Buy Points With Earnings Due.” Three he singled out are: Fabrinet (FN), Vertex Pharmaceuticals (VRTX), and Zendesk (ZEN). Others near buy points, according to IBD are: Alexion Pharmaceuticals (ALXN), and Tableau Software (DATA), among several others mentioned in the article.
Bottom line to me” We just had the best January for stocks in over three decades; and, all three major indices saw close to double digit gains — in one month. A good February would be about a one, or two percent gain, before resuming solid gains in March. February is historically a weak month for stocks.
More earnings this week will of course have a major impact on whether or not we continue with solid gains to begin February. Today, we’ll get fourth quarter earnings and first quarter 2019 forecasts from Gilead, Alphabet/Google (after the bell), Clorox and Seagate; on Tuesday we’ll hear from Disney, British Petroleum, Snap. and Viacom; Wednesday – GM, FireEye, Elli Lilly, and Softbank; Thursday – Expedia, and Yum Brands; and Friday – Hasbro, Phillips 66, and Arconic.
Have a good week. RCP, fortunascorner.com