S&P and Friends Extend Rally into November

When the S&P 500 at 3,066.90 closed on Friday afternoon, it was another record close for the benchmark index which is on its way to a stellar year. Since bouncing back from a 20% sell-off to close out 2018, more than a few eyebrows have been raised at the 22% that the index has tacked on so far in 2019. 

The tech-heavy NASDAQ was able to close just above its previous all-time high, set in July, while the Dow Jones Industrial index fell just 12 points short of its own. 

Friday’s push came on the back of an impressive non-farms report which drew a picture of a strong economy that’s still adding jobs. In terms of specifics, 128,000 new jobs were added in October compared to analyst estimates for 78,000 and upward revisions were made to both August and September’s numbers. Strong earnings from big names like CAT, AAPL, and WBA throughout the week also helped to set up the move into Friday’s close. 

While there’s still almost a full 2 months to go before calendars are replaced, 2019 is on track to become the fourth year since the turn of the century when the S&P 500 logs a 20% + performance. Considering the year that’s been and the potential pitfalls that have popped up, it would be no mean feat if it managed it. 

Buoyant Market

The dominating economic story this year has been the US-China trade war. Notwithstanding the trillions of dollars worth of tariffs that have gone into effect on both sides, the US stock market has so far been able to shrug off every negative headline that has come it's way.

That’s not to say that each headline didn’t catch the market’s attention, there have been plenty of red days on the back of some, but overall it’s the buyers who have continually taken back control once the news has been digested. 

Reports in early October of a potential deal on the horizon have also helped to increase investor’s appetite for risk as we head into the final stretch of 2019.

The Federal Reserve has certainly had a part to play in the market’s buoyancy with three rate cuts this year already. These have continued the dovish stance that has been the theme of Jerome Powell’s first two years in tenure since he took over the reins from the more hawkish Yellen.

Economic Concerns

That being said, it’s not all rosy. The latest ISM manufacturing reading came in at just over 48%. A reading under 50% indicates a contraction in economic activity and this will be added to the list of worrying economic signs that have been building up. Alongside a slump in manufacturing, US consumer confidence fell for the third consecutive month even while unemployment sits at a 50 year low. 

Globally, some cracks are starting to appear and concerns are high that they’ll spread to the US. 

European indices haven’t come close to setting all-time highs this year and the uncertainty and fear being generated from Brexit are keeping investor’s risk tolerance low. As economic output in the Eurozone continues to fall, demands for additional fiscal intervention are rising but have so far fallen on deaf ears.

On this of the Atlantic, the Fed has told the stock market that last week’s cut will likely be it's last for a while; in essence, ‘you’re on your own’ for the foreseeable future. 

Technical Outlook

From a technical point of view, however, things do look structurally sound and indeed promising in the near term. Investors were buying right up to the close on Friday and this has helped send the S&P 500 into ‘blue sky territory’. There are no big resistance levels up ahead and it will likely take a surprise headline or report to upset the current momentum. 

The index’s RSI is still in the mid-60s so there’s plenty of room to the upside before it would start to appear overbought. For those interested in getting long, this latest push to record highs came on the back of the 3,025 level is finally broken. The S&P 500 had been turned back from there in July and September. This makes for some solid support around this level so it could be worthwhile considering having stops below that.