Stop the presses!
The Dow just hit 20,000. Meanwhile, the S&P 500 is up +21.5% versus this day last year. It notched a new all-time closing high yesterday.
So, what now?
There are a lot of reasons for investors to stay bullish. The U.S. economy is heating up. S&P 500 earnings are growing. Meanwhile, market measures like stock market volatility (i.e. wild market gyrations) are falling and stock market volume (i.e. aggregate investor buying and selling) is accelerating on days when equities are up. Both express conviction that this rally has legs.
Earnings Season Update
#Earnings $SPY
It's shaping up to be a solid quarter for company earnings. A grand total of 86 companies in the S&P 500 have reported financial results thus far for the fourth quarter of 2016. Here's the breakdown of sales and earnings growth (respectively below):
- S&P 500 (aggregate): +2.1%, 3.5%
- Leader: Materials (XLB), -0.6%, +44%
- Laggard: Energy (XLE), -11.8%, -48%
The Breakdown: S&P 500 Sector Performance
$XLE $XLB
It's early. Only 3 of 35 Energy companies have report versus 4 of 25 Materials companies. Unsurprisingly, S&P 500 sector earnings directly mirror respective year-to-date performance:
- S&P 500: +1.8%
- Leader: Materials (XLB), +5.6%
- Laggard: Energy (XLE), -1%
The U.S. Economy Is Growing
#Economy #GDP #DurableGoods
As we have noted recently, U.S. growth and inflation data is heating up. In a sign of
- Inflation (Consumer Price Index or CPI) accelerated to +2.1% year-over-year growth (breaking 30 months below Fed's 2% inflation target)
- Manufacturing sector growth (Industrial Production) accelerated to +0.5% year-over-year growth (breaking 15-month contractionary streak)
This Friday, we expect fourth quarter GDP (on a quarter-over-quarter basis) to be 2.91%. This compares with 2.2% for Wall Street consensus and 2.8% for the Atlanta Fed's GDP tracker.
In other words, we're more bullish than the Fed.
Also on Friday, we'll get an update on Durable Goods, which, in November, improved to +1.2% year-over-year. This was the fastest pace of growth since April of 2015 when U.S. GDP topped out and growth declined for five straight quarters.
All of this suggests the U.S. economy is growing. We say stay long the S&P 500.
