by Ian Harvey
December 01, 2019
Stock market expectations were better than anticipated last week despite Friday's drop, with the Dow, S&P 500, and Nasdaq all posting solid weekly wins.
Optimism around U.S.-China trade relations and a milder-than-expected pullback in corporate earnings helped drive the market’s strong performance this month.
As well, comments from China saying it will hike penalties for intellectual property theft helped bolster the stock market earlier in the week.
However, the signing of two U.S. laws supporting Hong Kong protesters dampened some of that positive sentiment as a key December 15 deadline approaches.
China also threatened on Friday to take “strong counter-measures” against the U.S.
Walt Disney (DIS) stock remained in the spotlight this past week, hitting several new record highs amid data from Apptopia that the company's buzzing Disney+ streaming service is averaging almost 1 million new subscribers daily. News on Monday that "Frozen II" collected $127 million in U.S. box office sales helped push the stock higher as well.
Retail stocks were in the spotlight this past week as investors geared up for big sales on Black Friday.
The Dow Jones Industrial Average (DJI) was up overall by 0.6% for the week, and for November, it gained 3.7%.
The S&P 500 Index (SPX) ended the week up by nearly 1.0%; and a monthly gain of 3.4%
And the Nasdaq Composite (IXIC) also ended up 1.7% for the week; and a monthly gain of 4.5%.
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Stock Market Expectations for the Week Ahead…..
With Black Friday sales in the rear view, traders will be focusing their attention on Cyber Monday, with online sales already eclipsing the traditional post-Thanksgiving shopping event this year.
Stock market expectations could be controlled by the topic of trade; and that is what will make or break the rally at year-end.
However, strategists still expect some sort of deal that will head off a major decline.
Not only is the president tweeting that a trade accord will occur and his underlings are verbalizing that they’re getting close, but the Chinese themselves are saying they’re making headway.
President Donald Trump has promised that a preliminary trade deal with China is close, but there still is no agreement and the Dec.15 deadline for new tariffs is getting closer. Trump’s signing of legislation Wednesday supporting the Hong Kong protesters drew a negative reaction from Beijing and adds more uncertainty to trade talks.
Holiday Shopping and Santa Rally.....(as mentioned last week)
A Santa Rally is one particular phenomenon that falls within the broader subject of market seasonality…..read more…..
Analysts think both could be pretty good this year. The Friday after Thanksgiving could provide an early glimpse of how much the consumer will spend this year. The National Retail Federation estimates sales should grow by about 4% in the holiday shopping season, enough to keep the economy rolling along.
JP Morgan analysts, in a note Friday, said they expect sales to be up 4.9% during the holidays, much stronger than last year.
Stock Market Calendar for the Week Ahead.....
The economy has shown some signs of picking up, and a string of improved data has led economists to look for better growth in the fourth quarter. But the critical driver of growth continues to be the consumer, so holiday sales will be an important indicator to watch.
Employment data remains the most important of the economic reports, since a strong labor market is crucial for consumer confidence and spending.
OPEC and Russia hold meetings in Vienna on Thursday and Friday, and analysts expect them to extend their production cutting agreement. However, Russia may seek to change the rules for how it counts its petroleum output, so the meeting may not be as predictable as expected, some analysts say.
Stock Market Expectations for Earnings.....
Action to Take Based on the Stock Market Expectations…..
Stock market expectations should see the market continue to reach for new highs, as historically, in December, the S&P has added an average 1.6% in the final month of the year. The S&P is already up more than 25% for the year.
When the months of January and February are higher, the S&P 500 has an average total return of 24%, according to data going back to 1945. If the following year does not see have a similar double gain in January and February, it still does fairly well with a normal average return of 8% to 9%, he said.
The market’s performance for the entire year also bodes well for a positive move into year-end. Since 1928, when stocks are up 20% or more by Thanksgiving, like this year, the S&P 500 usually ends the year even higher, with an average gain of 1.8% between Black Friday and New Year’s Eve.
Therefore, there will likely be a Santa rally this year.
The S&P 500 could surge in a powerful rally to 3,850, if stocks stage the same type of breakout they had after the last two similar downturns, according to technical research strategists at Bank of America Merrill Lynch.
The strategists said there should be a sustained breakout of about 25%, if the market’s move from 2018 to earlier this month was a cyclical consolidation.
“History suggests that breakouts from these ranges should be powerful,” the strategists wrote in a note. On the S&P 500, the 3,063 level was the “bears’ last stand.”
As well, Credit Suisse’s Jonathan Golub predicts a 10% upside to the S&P 500 from current levels and finishing next year at 3,425.
While the strategist acknowledged that economic data has decelerated over the past year, he instead focused on what he expects to be weaker profit headwinds, plentiful buybacks and multiple expansions.
With charts sending a strong signal; and the long-term data has been bullish all the way through 2019; nothing suggests that cycle is over. Therefore, as it tends to run roughly three to four years between cycle lows, there should have more upside into 2020 and 2021.
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