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The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Thursday's Headlines

1. U.S. markets sprint higher on first trading day of the decade

2. China relaxes lending standards for its banks

3. First 5 days indicator and the January effect in focus

4. Dogs of the Dow vs. Non-Dogs in 2019

5. Vanguard joins the free trading party

Markets Closed

Dow
28,868.80 +1.16%

S&P
3,257.85 +0.84%

Nasdaq
9,092.19 +1.33%

VIX
12.47 -9.51%

Bitcoin
$6,995.50 -3.16%

US 10-Yr Yield
1.882 -1.93%

Image: Getty Images

Markets Today

Welcome to the Roaring 20s! It's great to be back.

U.S. markets sprinted into the new decade with the DJIA and the Nasdaq surging more than 1% as investors greeted the new month, quarter, year, and decade by buying stocks. The S&P 500 hit yet another record high - its first of the year - as tech stocks, particularly semiconductors, continued their march upward. President Trump announced yesterday that he would sign Phase One of the trade agreement with China at the White House on January 15, and then travel to Beijing, "at a later date," for more talks. But today's rally may have been in response to news that China's central bank has reduced the cash reserves that banks need to maintain - the so called reserve ratio - by 0.5%. That releases around $115 billion in new funds for lending, which should spur more spending in the world's second largest economy. Money is cheap, risks are mild, and investors are back to buying stocks. It's 2020... are you ready?

Here are some of today's biggest headlines:

Headlines

China's IHS Markit/Caixin manufacturing PMI fell to 51.5 in December from 51.8 in November. It's the lowest reading since September. Production saw a strong rise, but new order growth softened and employment stagnated. Selling prices increased for the first time in six months.
Former NBA Commissioner David J. Stern passed away on Jan. 1 at the age of 77 after suffering a brain hemorrhage three weeks ago. Stern led the organization for 30 years after taking over in 1984. He is credited with driving the popularity of the sport in the U.S. and abroad. "Without David Stern, the NBA would not be what it is today," Hall of Famer Michael Jordan said. "He guided the league through turbulent times and grew the league into an international phenomenon, creating opportunities that few could have imagined before." (I was fortunate to have met him several times and I know that he was also a great friend, a caring husband and father, and a generous person with his time and his resources. - Caleb)
Airbus has passed Boeing to become the world's biggest plane maker for the first time since 2011. It delivered 863 aircraft in 2019, which is a 7.9% increase from 2018. Boeing delivered 806 aircraft in 2018, but delivered only 345 aircraft in the first 11 months of 2019. Full-year figures are not out yet.
Tesla told Reuters it will start delivering China-made cars to the general public on Jan. 7. In separate news, Electrek noticed the company has updated its Supercharger map with new locations and routes.
2019 was the third safest year in commercial aviation history in terms of lives lost. The number of fatal accidents, however, has increased to a level above the five-year average, according to the Aviation Safety Network. Last year saw a total of 20 fatal airliner accidents, resulting in 283 fatalities. A little over half of the accidents took place in North America.
The U.S. Food and Drug Administration is banning most fruit and mint-flavored nicotine vaping products in an effort to curb a surge in teen use. Under the new rule, which takes effect in 30 days, companies that do not stop the distribution of sweeter flavors that appeal to kids risk enforcement action, the FDA said. Companies are also at risk of regulatory action if their products target kids or if they fail to take "adequate measures" to prevent access to children.

The First Days of the Year

Stocks rising on the first day of the calendar year is not a new phenomenon, in case you were wondering. The DJIA's 300 point jump today was higher than the average, but according to the Stock Traders Almanac, since 2009, the DJIA has advanced nine times in eleven years with an average gain of 0.71%. The S&P 500, Nasdaq, and Russell 2000 have risen in eight of those years with average gains of 0.85%, 1.01%, and 0.73% respectively.

chart courtesy StockTradersAlmanac.com

What's more interesting, is what we call "The First 5 Days" effect.

According to the Almanac, the first 5 days of January often set the tone for the rest of the year. When stocks finish the first 5 sessions higher, the S&P 500 has been positive 82% of the time at year-end with an average gain of 13.6%. There are always outlier years, to be sure, and 2020 could end up being one of them, but the early signs are strong for stocks, and so are the fundamentals like low interest rates and a relatively tame price-to-earnings ratio for the S&P 500.

Dogs of the Dow vs. the Non-Dogs

Tech stocks were the story of 2019, and much of the past decade. But the DJIA also posted impressive gains in 2019, rising 22% last year, its best performance since 2013.

What's interesting, is that the so-called 'Dogs of the Dow', which are the 10 highest dividend paying stocks in the index, posted an average return of better than 19%, according to the Bespoke Investment Group. That return would be very solid in a normal year, but 2019 was anything but normal. Yes, investors got those returns and a fat dividend payout, but avoiding the Dogs in 2019 may have been the smarter play.

chart courtesy BeSpoke Investment Group

The other Dow components, or Non-Dogs, which include Apple, Microsoft, and Visa, returned an average of better than 28%. They also pay dividends, just not as much. It was hard not to make money in 2019 if you were long stocks, but anchoring your performance to a particular strategy like the Dogs of the Dow, would've hurt your returns.

photo courtesy Bloomberg News

Vanguard Joins the Free Trading Party

It was only a matter of time, but Vanguard, the $2 Trillion mutual fund giant, joined the commission-free trading party along with rivals Fidelity and Schwab. Vanguard, started in 1983 by the legendary Jack Bogle, has always been committed to lowering fees for investors. It propagated index funds and encouraged its customers to buy and hold for the long term. As Bogle was fond of saying, "Stay the course, no matter what." The brokerage industry is in the midst of a massive transformation as it seeks to lower fees to bring more customers into the world of investing, and Vanguard realized it had to do the same to stay in the game.

More News:

Amazon Stock Could Break Out in the First Quarter

Tesla Stock Could Shake Out Complacent Bulls

January Barometer

(chart courtesy YCHARTS)

AMD rose today after Nomura Instinet raised its price target for the stock from $40 to $58 dollars in anticipation of new product launches in 2020.

Natural gas prices slid today due to the mild winter and high supply. This sent natural gas producers Antero Resources, EQT Corp, and Range Resources sliding today.

Word of the Day

Dogs of the Dow

Dogs of the Dow is an investment strategy that attempts to beat the Dow Jones Industrial Average (DJIA) each year by optimizing towards high-yield investments. The general concept is to allocate money to the the 10 highest dividend-yielding, blue-chip stocks among the 30 components of the DJIA. The strategy requires re-balancing at the beginning of each calendar year.

Today in History

January 2, 1882

Today in 1882 the Standard Oil Trust was formed. Shares from 40 companies were held by the trust, a legal holding entity controlled by the 9 trustees. The trust organization was nebulous and complex, making it hard to investigate, and therefore, hard to regulate. Contemporary journalist, Ida Tarbell wrote about the trust, "You could argue its existence from its effects, but you could not prove it." When the trust was founded, Standard Oil controlled about 90% of all oil refining capacity in the U.S. Standard oil reformed again in 1899 as a New Jersey-based holding company, and it was not until 1911 when Standard Oil was broken up.

Sources: https://www.britannica.com/topic/Standard-Oil

http://projects.leadr.msu.edu/makingmodernus/exhibits/show/standard-oil/ohio-v--standard-oil