The Hot List
1. Capitol Hill
President Trump was inaugurated as president on Monday.
2. Interest Rates
Interest rates dropped significantly last week with the 10-year yield back to 4.60%.
3. Inflation
The December CPI and PPI reports both showed prices rising in December – however not as much as analysts had expected.
4. Geopolitics
The first Israeli and Palestinian hostages have been freed in the ceasefire deal with Hamas. The Supreme Court upheld the ruling to ban TikTok in the U.S.
5. Economy
Retail sales grew by 0.4% in December – slightly below expectations (+0.5%). This week, investors will hear consumer sentiment and jobless claims reports for the latest reads on the economy.
Last Week
Monday: S&P 500 +9.18 (+0.15%) to 5836.22. No major economic releases.
Tuesday: S&P 500 +6.69 (+0.11%) to 5842.91. Dec. PPI +0.2% (vs. +0.3% expected). Core PPI +0.0% (vs. +0.2% expected).
Wednesday: S&P 500 +107.00 (+1.83%) to 5949.91. Dec. CPI +0.4% (vs. +0.3% expected). Core CPI +0.2% (vs. +0.2% expected).
Thursday: S&P 500 -12.57 (-0.21%) to 5937.34. Dec. Retail Sales +0.4% (vs. +0.5% expected). Initial jobless claims 217K (vs. 212K expected). Continuing Claims 1859K (vs. 1877K prior)
Friday: S&P 500 +59.32 (+1.00%) to 5996.66. Dec. Housing Starts 1499K (vs. 1318K expected).
S&P 500 [S&P] Technical Look
Potential Support: If the S&P can’t hold the 50-day moving average, look for additional support at the 5900 level where the 20-day moving average sits.
Potential Resistance: If the S&P does hold the 50-day, then look for resistance at the 6000 level where the S&P has topped out for the last few weeks. If it breaks above that level, look for the index to to make a run at the all-time highs around 6100.
Bright Ideas
Natural Gas
Value
Materials
Healthcare
Utilities
Gold
My Take
Stocks staged a nice “relief rally” as interest rates pulled back sharply. The December inflation reports were roughly in line with expectations at a point where many investors were poised for a hotter number. The 10-year yield fell all the way from 4.8 to 4.6% which helped make stocks more attractive.
It also seemed that tax selling was finishing up Tuesday that added another factor into the relief. After last year’s gains, I had been anticipating a tax-selling related pullback and it appeared that this one was masked by the strong jobs report and rise in yields related to it.
With the S&P back to pre-election levels, it seemed right on cue for the S&P to bounce off the 5820 level I had been pointing out in the last few Hot Sheet’s. A drop below that level would’ve signaled something much more worrisome than a normal statistical pullback.
Now stocks are gaining on what appears to be “animal spirits” and optimism based on what President Trump can do for the market. However, I am a little skeptical not only based on this same hype during his last term, but also that I’m not convinced inflation is over. Those last reports didn’t seem like inflation was under control and folks are still spending money like crazy.
From a technical standpoint, stocks have been moving sideways for the last 2 two months. This “coiling” action usually leads up to a larger breakout. Continue to watch the 50-day moving average and the 6000 level for clues on where stocks could go next.
In the meantime, watch for the rally to broaden out. Continue to keep an eye on energy and healthcare to play catch up after lagging last year.
As always, if you need help or would like me to manage your money, please contact me today.
Until next time,
Clint Kirby
Chief Financial Strategist
Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.