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Resilient Market

| February 11, 2020

Resilient Market

After last week’s sell-off the equity market continues to make a comeback with resilience. All indexes were on the verge of making a new high or made a new all-time high, although the relative strength (RSI) of all indexes remains below its previous high. The NYSE advance/decline line has also lagged the NYSE, as the largest cap companies remain the biggest attributors to the performance of indexes.

The solid jobs growth of 225,000 for the month of January, and the better than expected wage growth rate, affirmed the fact that the labor market remains strong. The ISM manufacturing index emerged from its six months of contraction and the non-manufacturing index continued to expand at a modest pace. The fall in the initial jobless claims offered further evidence that the surge in layoffs suggested by the Challenger report is probably a one-off and not necessarily weakness in the labor market.




I found a very interesting chart (see below) of the Nasdaq index (NDX) relative to the S&P500 (SPX), where the Relative Strength of the NDX is toward the higher end of their previous peaks which led to severe drawdowns.  I think at this juncture in the bull market, a pullback would be healthy and much warranted.

According to FactSet, so far about 320 companies from the S&P 500, have reported earnings for the fourth quarter 2019. The blended (combines actual results for companies that have reported and estimated results for companies that have yet to report) earnings growth rate for the fourth quarter is 0.7%, which is above the earnings decline of -0.5% last week. The blended revenue growth rate for the fourth quarter is 3.5%, which is above the revenue growth rate of 3.3% last week. Positive revenue surprises are reported by companies in the Financials and Health Care sectors, which were mainly responsible for the increase in the overall revenue growth rate during the week.



Source: macrocharts, NDX/SPX





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