foxex: One for the Books!

The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Friday's Headlines

U.S. Markets top off Best Quarter in a Decade

Markets Close

Dow
25,928.68 +0.82%

S&P
2,834.40 +0.67%

Nasdaq
7,729.32 +0.78%

VIX
13.78 -4.50%

INV Anxiety Index
99.05 Neutral

US 10-Yr Yield
2.414 +1.05%

Year-to-Date

Dow
25,928.68 +12.43%

S&P
2,834.40 +14.03%

Nasdaq
7,729.32 +17.39%

Russell 2000
1,539.74 +15.08%

Crude Oil
60.14 +31.20%

US 10-Yr Yield
2.414 -11.77%

Frank Polich/Getty Images

Best Quarter in 21 Years for the S&P 500

U.S. markets rallied again on Friday as more positive trade talk prompted heavy buying across the board. All major indexes traded higher. The S&P 500 posted its best quarterly performance since 1998. It's hard to believe that U.S. stocks were down 18% from their highs as of Christmas eve, but they were, and now they are back.

We can thank the Fed for the rally, and some would say we can blame it for the 2018 selloff. Regardless, keeping interest rates in the 2.25-2.50% range for the foreseeable future is great for stocks, great for the U.S. housing market and great for consumers carrying debt. It's not great for savers or people living on a fixed income since they will earn less through their savings accounts or fixed income investments, but that is the trade off.

But this Feels Weird...

We are living in a peculiar time in financial history when growth is slowing, corporate profits are falling, but the U.S. stock market keeps rising. The bond market is telling us through lower yields that growth is slowing and it looks particularly sluggish in the next 3 to 12 months. But stocks keep marching higher on rumors of a trade deal and the promise of low interest rates. When interest rates are historically low, as they are now, there is an acronym we like to use called "T.I.N.A". That's short for "There is no Alternative". In this environment, investors looking for returns are only finding them in the stock market. (P.S. European markets have also had a terrific quarter. James has more on that in our chart of the day.)

Add to that the increasing volume of stock buybacks, which boost corporate share prices, and we wind up where we are...with stocks near record highs in the face of slowing growth. Chart from Birinyi & Associates and Bloomberg.

Lyft Lifts

The ride-sharing company finally went public today (I've been waiting all week!) and investors greeted it with a thumbs up. Shares popped more than 20% when trading opened, but settled back to a modest 8.7% gain.

Lyft is the first of the 21st century 'unicorn stocks' to test the public markets, and it picked a good day to do it. As we've mentioned, more than half of IPOs trade lower six months after their initial public offering. There are a few reasons for that, but one worth remembering is that IPOs are subject to a lock up period, in which insiders cannot sell their shares until six month after their debut.

Lyft has some high-octane shareholders who have backed the company over its 7 year history. In addition to its founders, who control 40% of the voting shares of the company, its backers include the following:

Rakuten, the Japanese e-commerce giant: 13%
General Motors: 8%
Fidelity Investments: 8%
VC Firm Andreesen Horowitz: 6%

They are going to want to get paid for their investment and their patience.

Here's today's minute by minute chart of LYFT after it started trading at 12:00pm ET. I'm no technical analyst like James, but this is does not signify positive momentum. We'll see what next week brings.

What's Next

Now that Lyft has braved the public markets, expect the rest of the LUPA stocks to do the same. That's Lyft, Uber, Pinterest and Alibaba. They won't be the only ones to do so. Expect Slack, Palantir and Postmates to also give it a go in the near future.

I appeared on MSNBC today (U.S. cable channel) to talk about the markets and the Lyft IPO with my pal Ali Velshi. Give it a watch if you are interested.

Brexit is Broken

Today was the day that the U.K. was going to leave the EU. But, as we know, that's not going to happen. Members of the U.K. Parliament rejected Prime Minister Theresa May's withdrawal agreement for the third time by a wide margin. This means the U.K. has missed a deadline to delay Brexit until May 22nd and leave the EU with a deal. May has until April 12th to seek a longer extension and avoid what is known as a 'Hard Brexit', which would mean leaving the EU without a deal in place.

What to Expect Next Week

Here's a quick look at the economic calendar for next week in the U.S., highlighted by the Jobs Report on Friday:

Monday: Retail Sales and Construction Spending for February.

Tuesday: Durable Goods and Motor Vehicle Sales. Auto sales have been declining in the U.S. over the past several quarters, but usually pick up as we head into the Spring and Summer seasons. No one, particularly the U.S. automakers, thinks that auto sales will ever return to the 18-20 million per month days of the early part of the 21st century, which us why Ford has said it will stop making cars altogether, except for the Mustang and Focus Active. But auto sales are a leading indicator for lending. Now that interest rates are falling, especially for mortgages and auto loans, we could see a pick up in activity.

Friday: The U.S. Non-Farm Payrolls Report, aka the Jobs Report. This will be 'one to watch', given the surprisingly low February numbers. February could've been a monthly aberration, or it is a sign that companies really are tightening their belts in anticipation of a real slowdown.

More News:

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Turbulent Month for Airline Stocks May Be Over

Chart of the Day: European Markets Lag U.S. but Remain Resilient

Though European markets were still under some pressure on Friday, as they have been for much of the past two weeks, stocks in the eurozone still closed in the green to end the week. This positive close occurred even after British Prime Minister Theresa May lost yet another important vote on Brexit in the UK Parliament on Friday. May's third attempt to pass a Brexit deal in Parliament ended in another massive letdown for the embattled PM. European Union officials had earlier passed the withdrawal proposal before it was summarily shot down.

Despite the ongoing disappointments surrounding the Brexit process, European stocks remain entrenched in a sharp uptrend going back to the late December lows. Of course, there are even heavier pressures on eurozone stocks than Brexit - namely, the euro economy. Earlier this month, the European Central Bank (ECB) cut its 2019 economic growth forecast drastically from 1.7% back in December to a new estimate of only 1.1% GDP growth. At the time, ECB President Mario Draghi stated in the press conference that "the risks surrounding the euro area growth outlook are still tilted to the downside."

But European investors are not only focused on Europe - they're also watching global economic growth and the U.S.-China trade talks closely. Optimism that a deal may be struck between the two superpowers helped fuel both U.S. and international markets on Friday. With any further positive developments in these critical negotiations, European stocks will likely be lifted along with their global counterparts.

From a technical perspective, the chart above shows the iShares MSCI Eurozone ETF (EZU) in a bit of a holding pattern between two major moving averages - the 50-day and 200-day. But, as noted, the ETF is still entrenched in a sharp uptrend from December lows. As long as European stocks remain in this uptrend trajectory, a further market recovery is likely. The market risks on the horizon, however, are significant. European economic growth is a major concern, and Brexit still remains an unknown. With any substantial breakdown below the trend channel, eurozone stocks could be poised to resume their longer-term bearish trend.