U.S. equities crept higher on Friday after spending much of the session in negative territory. Save for a last-minute surge that pushed the Dow Jones Industrial Average up more than 30 points into the green. Can't have the bulls doubt these record highs over the three-day weekend, can we?
News flow was light, with a focus on President Trump's combative press conference on Thursday and M&A activity overnight with Kraft Heinz Co (NASDAQ: KHC ) making a $100 billion plus bid for Unilever plc (ADR) (NYSE: UL ), pushing both up 10.6% and 14%, respectively. There was also continued focused on stretched valuations, extended sentiment, narrow breadth, evidence of inflation heating up.
In the end, the Dow gained a fraction, the S&P 500 gained 0.2%, the Nasdaq Composite gained 0.4% and the Russell 2000 gained 0.1%. Treasury bonds were stronger, the dollar moved higher, gold lost 0.2% and oil was little changed.
Telecom stocks led the way on M&A rumors, with Reuters reporting Softbank is planning on approaching T-Mobile US Inc (NASDAQ: TMUS ), up 5.5%, about a possible merger with Sprint Corp (NYSE: S ), which rose 3.3%. Energy and materials were the laggards, down 0.5% and 0.3%, respectively.
Hertz Global Holdings, Inc (NYSE: HTZ ) dropped 7.7% after suffering a downgrade from Credit Suisse analysts after an update from Avis Budget Group Inc. (NASDAQ: CAR ) - down nearly 18% over the past two sessions - raised doubts about profit growth given weak volume, flattish pricing and inflationary fleet costs.
For now, stocks seem likely to continue to shrug off headwinds, defy the skeptics, and power higher as the economic data keeps heating up as Trump-related confidence translates into actual economic activity.
Bloomberg's indicator of economic surprise it as its highest level since 2012. The Philly Fed manufacturing survey is at its highest level since 1984. Retail sales rose 0.4% last month. Consumer inflation is running at its hottest since February 2013 while the core CPI gain was the highest since 2006.
At this point, the only catalyst that seems ready to end this creeper uptrend would be a sooner-than-expected rate hike from the Federal Reserve at its March policy meeting. Currently, the futures market is only assigning an 18% chance of a March hike. June is seen as much more likely, with more than a two-thirds chance of at least a single quarter-point hike by then.
I continue to recommend a cautious focus on areas that have lagged the rally of the past two weeks, outside of financials, such as Johnson & Johnson (NYSE: JNJ ). The March $115 JNJ calls recommended to Edge Pro subscribers are up nearly 130% since recommended on Tuesday.
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