Happy birthday to the U.S. bull market! Eight years ago, the S&P 500 closed at 676.53, the low point for the worst bear market in equities since the Great Depression.
“No one would have ever believed it possible at the time, but at 97 months old, this now ranks as the second-longest bull market since World War II,” said Ryan Detrick, senior market strategist at LPL Financial. “On a percentage basis, though, both the 1950s and 1990s bull markets saw larger percentage gains.”
Detrick essentially says that age is just a number.
“We don’t believe bull markets die of old age; they die of excesses. This bull might be old, but we aren’t seeing the same type of overspending, overborrowing or overconfidence we’ve seen at other major market peaks.
“This doesn’t mean there won’t be pullbacks along the way, because there will be, but it does suggest this old bull could still have a few tricks up his sleeve.”
Stocks boosted by jobs
U.S. stocks ended higher Friday on the back of a very solid employment report. U.S. job growth increased more than expected in February, and wages rose steadily. Nonfarm payrolls rose by 235,000 jobs last month as the construction sector recorded its largest gain in nearly 10 years, thanks to unseasonably warm weather. And perhaps it reflects President Donald Trump’s infrastructure spending plans.
The unemployment rate fell one-tenth of a percentage point to 4.7 percent, even as more people entered the labor market.
Oil slick
U.S. crude oil prices fell below $50 a barrel to their lowest levels since mid-December early Thursday, after the Energy Information Administration reported an 8 million-barrel rise in U.S. stockpiles last week. That was about four times as much as analysts had expected, and marked the ninth week in a row of inventory gains.
J.J. Kinahan, chief market strategist at TD Ameritrade, points out in a note that “as supplies keep posting new record highs, energy sector stocks now bring up the rear in sector performance year to date, down more than 6 percent.”
Anticipated interest rate hikes
All eyes will be on the Federal Reserve on Wednesday, when the Federal Open Market Committee delivers its decision on interest rates.
Following the strong employment report, traders have essentially priced in a rate hike, giving a better-than-even chance of two more rate hikes during 2017, with a small chance of a fourth increase. Based on the price of fed funds futures contracts traded at CME Group, it appears the risk is to the downside, should the Fed not raise rates, or, conversely, if the central bank decides on a rise of more than 25 basis points.
If the Fed were to keep rates unchanged, it would send a signal that it does not have much confidence in the economy, and that could cause a spike in market volatility.
Trading week ahead
This month has been an unusually busy month for global markets, and that will continue next week. In addition to the Fed, the Bank of Japan and Bank of England are set to meet, the Netherlands holds an election, Chinese Premier Li Keqiang is holding a news conference and the G-20 finance ministers are meeting in Germany.
Stateside, investors will have a fresh set of retail sales data, as well as the Consumer Price Index, housing starts and leading indicators.
Debt ceiling
By the end of Wednesday, the U.S. Treasury is expected to reach its maximum debt ceiling, which means Treasury Secretary Steven Mnuchin will have to scramble to ensure the country can continue to keep paying its bills in full and on time.
The debt limit is the total amount of money that the U.S. government is authorized to borrow to meet its obligations, including Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds and other payments.
Failing to increase the debt limit would have catastrophic economic consequences and is considered unthinkable. It would cause the government to default on its legal obligations, an unprecedented event in American history. Mnuchin sent a letter to Congress this week addressing the issue.
Merkel to meet Trump
German Chancellor Angela Merkel will meet with Trump in the U.S. capital on Tuesday, and the results of their talks will be watched closely to see if Berlin and Washington can get past a variety of potential strains to the trans-Atlantic relationship that have arisen this year.
During the U.S. political campaign, Trump said Merkel’s policy of accommodating immigrants was steering Germany toward “disaster.” And in contrast to Trump’s policies, Merkel has insisted that Europe can never isolate itself socially and economically from its neighbors.
