foxex: Spring in our Step

The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Friday's Headlines

U.S. Markets Rally as S&P 500 Posts Best Week Since November

Markets Close

Dow
25,848.87 +0.54%

S&P
2,822.48 +0.50%

Nasdaq
7,688.53 -0.76%

VIX
12.88 -4.59%

INV Anxiety Index
96.98 Low

US 10-Yr Yield
2.59 -1.41%

Year-to-Date

Dow
25,848.87 +10.81%

S&P
2,822.48 +12.59%

Nasdaq
7,688.53 +15.87%

Russell 2000
1,553.54 +15.20%

Crude Oil
58.39 +25.33%

US 10-Yr Yield
2.59 -3.36%

Markets Hop into the Weekend

U.S. markets had a nice little rally to end the week, with the S&P 500 posting the biggest weekly gain since November. Both the S&P and the Nasdaq are up more than 3% this week while the DJIA lagged due to the selloff in Boeing. The aircraft maker faced heavy selling all week following the fatal crash of an Ethiopian Airlines jet last weekend of one of its 737 Max Jets. Today, Boeing reportedly said it will install new software for the 737, which helped boost the stock after several days of selling.

Tech Stocks Lead

Tech stocks have been the market leaders so far in 2018 after getting trashed at the end of 2018. (James has more on how chip stocks have been ripping this year after a bloody 2018, below) The tech sector surged 5% this week, led by stocks like Nvidia (NVDA), which is up 11% this year. Remember, Nvidia, which was a high-flyer in 2017 given the cryptocurrency craze, was destroyed at the end of last year, but has been creeping its way back up in 2019. Here's a chart of NVDA against the tech ETF QQQ over the past two years.

Commodities out in Front

We've written a lot about the outperformance of stocks so far in 2019, and it has been noteworthy. We tend to focus (maybe over-focus) on stocks since they are the most popular asset class among individual investors. But, if you open up the hood of global securities, you'll see that commodities have been sizzling so far this year.

Here are the top performing asset classes, year-to-date:

Commodities + 14%
Global Stocks + 11.4%
High yield bonds + 5.9%
Investment Grade Bonds + 3%
Govt. Bonds + 0.7%
U.S. Dollar + 0.4%

Higher prices for oil and gold, in particular, have been responsible for the outperformance in commodities. Oil futures hit a four-month high today and have been surging as OPEC has cut production and Venezuela, one of the largest oil producers on the planet, has been mired in a political and humanitarian crisis. Gold surged at the end of 2018 and into 2019 as investors fled stocks and sought safety in the precious metal. If the global economic slowdown is what we think it will be, don't expect oil prices to continue this trend unless there are more production cuts on the horizon.

Bank of America Merrill Lynch puts together what it calls "The Quilt of Returns", showing the top performing asset classes ever year. It's pretty, but it also provides a great snapshot of investor rotation in and out of asset classes, year by year. Zoom on in and have a look.

What's Next

Speaking of oil, we'll get two important reports next week that will give us a good picture of where the commodity is headed. On Wednesday, the EIA (Energy Information Administration) will release its weekly report on oil and gas inventories. This is a good snapshot of how much refined oil and gas producers are holding in their refineries and in transport. The numbers have been falling for the past several weeks as production cuts have taken effect. We should expect more of the same next week.

On Friday, we'll get the Baker-Hughes Oil Rig Count for the week. This is exactly what it sounds like - a count of the active oil rigs in United States waters. If you have ever flown over the Gulf of Mexico near Louisiana and Texas, the turquoise waters are populated with enormous oil rigs as far out as 300 miles off-shore. You'll see the same thing if you fly from Vancouver to Anchorage Alaska. If you fly these routes often, you are seeing fewer active rigs pumping crude oil out of the ocean floor. If you chart active rig production like TradingEconomics.com does, it looks like this.

Trade Talks

The trade talks between the U.S. and China have gone radio silent for the past several weeks, and plans for an end of March summit between President Trump and President Xi to seal the deal are off the table, according to U.S. Treasury Secretary Mnuchin. That said, there were two reports this morning from Chinese news agencies that indicated that Secretary Mnuchin and Chinese Vice-Premier Liu spoke Thursday and, "... the two sides have further made concrete progress on the text of the trade agreement." No further details were provided, of course. President Trump said yesterday that he expects resolution in the next 3 - 4 weeks. We'll see.

Fed Meeting

The Federal Open Market Committee of the Federal Reserve (the Fed) will meet next week on interest rates. You know by now that the Fed is playing patient and Jerome Powell told us last Sunday on national television that he and the other Fed governors are comfortable with where rates are now. Apparently, everyone believes them. According to the CMEGroup's Fed Watch, there is a 1.3% chance of any rate change next week. If the Fed raises or lowers rates next week, I'll eat my hat!

Have a great weekend, everyone. Sending prayers and healing to New Zealand. We are all Kiwis today.

Chart of the Day: Semiconductor Stocks Break Out to New Highs

Semiconductor stocks have done exceptionally well this week. In fact, the benchmark Philadelphia Semiconductor Index (SOX) had its best week - at well over a 5% gain - since the first full week of January. Though Q4 2018 was clearly rough on semiconductor stocks, as it was on equity markets as a whole, the SOX has surged a full 23% since the beginning of the year (as of Friday's market close). This compares favorably to the Nasdaq Composite's +18% and the S&P 500's +14%. And unlike the S&P 500, the SOX has now essentially pared all of its losses from the disastrous fourth quarter of last year.

The VanEck Vectors Semiconductor ETF (SMH) is the most heavily-traded major grouping of public U.S. semiconductor companies in an exchange-traded fund. Including such key holdings as Intel, Nvidia, AMD, and Micron, SMH just hit a new 5-month high on Friday, breaking above the high of late February. Fueling this rise, individual semiconductor companies have been on the upswing of late, especially leaders like Intel and Nvidia. The semiconductor ETF has not only broken out to a new multi-month high, it has also tentatively broken out above a key downtrend resistance line connecting three consecutive highs going back almost precisely one year.

Provided the overall market cooperates next week, the breakout in semiconductor stocks could boost the SMH ETF towards its next major technical target around the 110.00 resistance level.