Neutral. Even though February is right in the middle of the Best Six Months, its long-term track record, since 1950, is rather tepid. February ranks no better than sixth and has posted meager average gains except for the Russell 2000. In election years, February’s performance remains bland.
Fading. According to Investor’s Intelligence Advisors Sentiment survey Bullish advisors are at 52.8%. Correction advisors are at 28.3% and Bearish advisors are 18.9%. New all-time highs, bullish yearend seasonality and the holiday season typically cause high levels of bullish sentiment from now until well into the New Year. Just one week ago, in mid-January, bulls were at a high of 59.4%. This easing of bullish sentiment is positive and not unexpected as the market pauses to access the impacts of the coronavirus, valuations, and earnings.
Mixed. Advance estimate for 2019-Q4 U.S. GDP was 2.1%. Full-year 2019 GDP was 2.3% compared to 2.9% in 2018. Growth has slowed and could still be slowing. Even though growth has slowed, employment remains solid with 145,000 net new jobs added in December and the unemployment rate is 3.5%. Analysts expect corporate earnings forecasts will improve in 2020, but upward revisions have been lacking as earnings season rolls along. The spread of China’s coronavirus globally is a concern as the potential impacts to growth remain uncertain.
Consolidating. After a steady rise from early-October through mid-January, DJIA, S&P 500 and NASDAQ appear to be taking a breather. All three indexes logged new all-time highs during the run. The rapid spread of the coronavirus may have triggered the pause and retreat, but key support at 50-day moving averages remains intact for S&P 500 and NASDAQ.
1.50-1.75%. Rates are still low and are likely to remain low. QE4 or repo market support is now expected to continue through at least April 2020. Based upon the manner in which the repo market suddenly needed support last September, it would not be surprising to see support last beyond April of this year. Fed balance sheet expansion has historically boosted the stock market and it will likely have a similar effect now.