Risk-on Trading to Start 2020
- NASDAQ Composite +0.59% Dow +0.58% S&P 500 +0.31% Russell 2000 -0.55%
- NASDAQ Advancers: 1105 Decliners: 1389
- WTI Crude: -0.25% Gold +0.43% 10yr Treasury Yield 1.89% VIX 13.02 -0.76
- Market Volume (vs New Year's Eve): +30.5%
Market Movers
- U.S. Initial Weekly Jobless Claims reported at 222,000 vs. consensus 220,000
- U.S. Continuing Jobless Claims reported at 1.728 million above consensus of 1.68 million
- U.S. IHS Markit December Manufacturing PMI 52.4 vs. consensus of 52.5
- China Caixin Manufacturing PMI fell to 51.5 in December vs 51.7 in November
- China's PBOC announced it will cut required reserve ratios for small & large banks by 50 bp
Chris’ Commentary
Traders are back for the first trading session of the New Year and it is a risk-on day for the major averages to start 2020. The S&P 500, Dow, Nasdaq Composite and Nasdaq 100 Index made fresh highs this morning on continued positive momentum. Small caps are lagging as evident by the Russell 2000 trading lower. China announced new stimulus today that is giving a boost to the global economy. The People's Bank of China said it will cut its reserve requirement ratio by 50 basis points next week and signaled it will continue to implement favorable policy throughout 2020. This will add about 800 billion yuan ($115 billion) of liquidity into the Chinese financial system and thus their local economy.
Currently, 6 of the 11 of the S&P 500 sectors are trading higher with Tech and Industrials the best performers. Real Estate and Utilities are underperforming. Crude oil trades flat to slightly lower. Gold trades higher for the 7th day in a row. The dollar moves slightly higher, but still is trading at 6 month lows. The yield on the 10-yr stands at 1.89%.
For the record, the major indexes had a great 2019. The S&P 500 closed up 28.88%, the Dow up 22.34%, the Nasdaq Composite up 35.23%, the Nasdaq 100 Index up 37.96% and the Russell 2000 Index up 23.72%. From a total return perspective (which included dividends & distributions) the S&P 500 returned 31.48%, the Dow +25.34%, the Nasdaq Composite +36.74%, the Nasdaq 100 Index +39.46 and the Russell 2000 +25.49%.
Bloomberg ran an article stating that private equity firms ended 2019 with almost $1.5 trillion in unspent capital. This is the highest level of year-end cash on record. The article said there are a number of items in place to drive healthy deal flow, including Brexit certainty, continued low rates and ongoing technology disruption across multiple sectors. Bloomberg did say that global trade tensions could be a continued headwind moving forward. President Trump stated earlier in the week that he will sign the “Phase One” trade deal with China on January 15th. He also stated he will travel to China soon to start “Phase Two” negotiations. Jason Thomas, global head of research at private equity firm Carlyle stated in the article that, “We’re entering the year with people feeling much better about the economic and geopolitical outlook that was the case a year ago.”
Sector Recap
Brian’s Technical Take
2019 is officially in the books and it was clearly a banner year for U.S. equities. The S&P 500 (+31.5% total return), Dow Jones (+25.3%) and Russell 2000 (+25.5%) registered their best annual performance since 2013. The Nasdaq 100 (NDX) took it one step further and had its best year (+39.5%) since 2009.
Underneath the hood the gains were broad with ten of eleven GICS sectors scoring a total return of at least +20%. The S&P 500 Technology Index printed a phenomenal +50.3% total return due in part by +66.5% gain in the SOX Index. Energy underperformed with a relatively weak total return of 11.8% despite a 34.5% gain in WTI crude. Ex those two sectors, the remaining nine GICS sectors had an average total return of +27.8% in 2019.
Importantly the breadth of last year’s advance was also very good which should bode well for 2020. The Russell 3000 Index (RAY) represents 98% of all publicly listed U.S. companies and it had a total return of +31% in 2019. In Q4 alone the RAY Index rebounded more than +13% off of its October lows. In late December more than 10% of the members within the index were making new 52-weeks highs (lower panel), the highest percentage in 18 months.
Given the sharp gains particularly over the last quarter, a near term period of consolidation to work off overbought technical readings would not be a bad thing. The Russell 3000 Index ended 2019 with gains in eleven of the final twelve weeks. It has not had a streak like that since late 2017. Back then markets melted up for another month into January 2018 (+5.2% for the RAY Index), before then entering a meaningful correction.
Nasdaq's Market Intelligence Desk (MID) Team includes:
Charles Brown is Associate Vice President on The Market Intelligence Desk with over 20 years of equity capital markets experience. Charlie has extensive knowledge of equity trading on both floor and screen-based marketplaces. Charlie assists with the management of The Market Intelligence Desk and works with Nasdaq listed companies providing them with insightful objective trading analysis.
Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.
Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen-based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.
Brian Joyce, CMT is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Before joining Nasdaq, Brian spent 16 years as an institutional trader executing equity and options orders for both the buy side and sell side. He also provided trading ideas and wrote technical analysis commentary for an institutional research offering. Brian focuses on helping Nasdaq’s Financial, Healthcare and Transportation companies, among others, understand the trading in their stock. Brian is a Chartered Market Technician (CMT).
Michael Sokoll, CFA is Associate Vice President on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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