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The Markets This Week

March 13, 2018 | Weekly Commentary

Nine years ago, the market decided it couldn’t go any lower. Now we’re still wondering just how high it can go.

On March 9, 2009, the Standard & Poor’s 500 index closed at 676.53, in what would prove to be the closing low of the financial crisis. And while the index has more than quadrupled since then, it proved that it still has some juice left in its tank.

The S&P 500 gained 3.5%, to 2786.57, last week, while the Dow Jones Industrial Average rose 3.3%, to 25,335.74, and the Nasdaq Composite climbed 4.2%, to 7560.81.

Even more impressive was the way the market earned those gains. We expected it to rise when the Trump administration’s tariffs were watered down to exempt Canada and Mexico. The rally on Friday, when the Dow gained 440.53 points, was another thing altogether. It came after Friday’s blockbuster payrolls report, with 313,000 jobs added to the U.S. economy, well above the 200,000 predicted by economists, and slightly weaker-than-expected wage growth—a combination that implies healthy growth and limited inflation pressures.

You’d expect the market to open higher with a number like that—which it did—but the trend following the 10 strongest reports since 1998 has been for the market to open up, rally a bit, and then give back most of the gains, according to Bespoke Investment Group data. That certainly wasn’t the case this time. And the fact that the data was almost the reverse of the previous month’s, which kick-started a correction with concerns of a more proactive Federal Reserve, didn’t go unnoticed.

“The market was gearing up for the worst, and when it doesn’t happen, you get 400 points in the Dow,” says Paul Hickey, Bespoke’s co-founder.

That doesn’t mean that the market is going straight up from here. Quincy Krosby, chief market strategist at Prudential Financial, notes that the concerns that have lingered over the market—inflation, rate hikes, and rising bond yields, among them—haven’t gone away, and there’s still a lot of data to come that could shake things up again.

The consumer-price index is set to be released next Tuesday, and it will be followed by the producer-price index on Wednesday. And even if wage growth was softer, job growth like February’s will eventually lead to higher wages. “This is a data-dependent market,” she says. “It will continue to feel vulnerable as inflation-related data is released.”

But vulnerable isn’t the same thing as weak. The Nasdaq Composite closed at an all-time high last week, while the S&P 500 and Dow are just 3% and 4.8%, respectively, below their own records. The Nasdaq has been given a lift by its heavy weighting to technology—the sector has gained more than 12% during the past month—and its lack of exposure to the likes of utilities and consumer staples, which have gained less than 1% during that period. But make no mistake, if the Nasdaq can do it, so can the S&P 500 and the Dow. “It’s not like other areas haven’t been moving up,” says Instinet’s Frank Cappelleri. “They just haven’t as quickly.”

Give them time.

(Source: Barrons Online)

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