As Year Winds Down, Market Keeps Heading Up As Optimism Continues

Adding to the optimism that has been helping fuel record-breaking stock performance, media reports noted that Chinese industrial company profits grew in November.

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Key Takeaways

  • Chinese industrial profits post growth in November

  • Nasdaq surpassed the psychologically important 9,000 mark

  • Amazon surges after saying holiday season was record-breaking

(JJ Kinahan is out of the office today, so Alex Coffey, sr. specialist, Trader Group, is filling in).

(Friday Market Open) This market looks to be the gift that keeps on giving. 

Optimism about the pending trade deal keeps helping shares move higher, and if this morning is any indication it seems like today could see more records in the main three U.S. indices.

Adding to the optimism that has been helping fuel record-breaking stock performance, media reports noted that Chinese industrial company profits grew in November. The news comes as Beijing has taken measures to stimulate China’s economy. And with a partial trade deal, investors are likely hoping that easing tensions on the tariff front will help further boost economic growth on both sides of the Pacific.

Strong Holiday Spending

The day after Christmas, as some people perhaps headed out to the stores to return ugly sweaters, unwanted socks, or electronics that were dead-on-arrival, it was perhaps fitting that retail-related news helped move the market.

All three of the main U.S. indices closed at fresh records, and the Nasdaq Composite (COMP) surpassed the psychologically important 9,000 mark, helped by investor optimism about the pending trade deal as well as a strong showing from holiday shoppers. 

According to Mastercard SpendingPulse data, U.S. retail sales excluding automobiles grew 3.4%, with online sales increasing 18.8%, year-over-year from Nov. 1 through Christmas Eve. E-commerce sales accounted for 14.6% of total holiday retail sales. And while department stores saw an overall sales decline of 1.8%, they saw online sales jump 6.9%.

In the AmaZONE

Adding to the good news from the retail industry, Amazon(AMZN) announced a record-breaking holiday season in which customers ordered billions of items and purchased tens of millions of Amazon devices. AMZN shares rose 4.45% Thursday, making the online retailing giant the best performing stock in the S&P 500 Index (SPX) for the day. 

The surge in share price was good news for buy-and-hold AMZN investors who have seen the stock underperform the major indices in 2019 amid regulatory concerns and the company’s focus on expanding its delivery and logistics services. AMZN has seen margin pressure from its focus on fast shipping options, including one-day delivery.

Also, 2019 marked a year of increased competition for AMZN as retail giants Walmart(WMT) and Target(TGT) held their own. Also Microsoft(MSFT) squared up against AMZN in the cloud space leading to AMZN having to navigate a much more competitive marketplace in another of its core businesses.

Consumers Resilient

Still, even though the retail pie has many slices, it seems to be plenty big and growing as the consumer in the United States has remained resilient—even during a time of heightened uncertainty before the U.S. and China announced the phase one trade deal. 

In addition to lower interest rates, a strong domestic jobs market has been helping the U.S. consumer. When people feel secure about their employment, they’re more likely to be willing to spend money at the store or—increasingly—at the computer.

On the jobs front, data on Thursday showed weekly initial unemployment claims falling for the second week in a row, coming in right at a Briefing.com consensus of 222,000. That was down from an upwardly revised previous figure of 235,000. Continuing claims fell to 1.719 million from an upwardly revised 1.725 the prior week. 

CHART OF THE DAY: VOLATILITY MUTED AMID STOCK SURGE. With stocks setting new record highs almost daily as the year comes to a close, volatility has been taking a holiday. The Cboe Volatility Index (VIX - candlestick) has been below 13 since roughly the middle of this month. It’s also well under its long-term average of around 18 (purple line). That being said, though the so-called "fear index" typically moves inversely to the S&P 500 Index (SPX - blue line), amid record highs in the SPX and other indices the VIX has mostly chopped around the 12-handle—above the 11.44 low from just before Thanksgiving. Data source: Cboe Global Markets, S&P Dow Jones Indices. Chart source: Thethinkorswim® platform from TD AmeritradeFor illustrative purposes only. Past performance does not guarantee future results.  

Energy Gaining Ground: While the Energy sector has been a laggard in 2019, it's officially out of correction territory—as defined by being within 10% of a recent high. It’s now down around 9.5% from its April highs. Producers and refiners have been seeing business conditions improve as crude oil rises from recent doldrums. The North American benchmark had been range bound between approximately $50 and $60 per barrel for much of the time since early summer amid an increase in U.S. production and limited demand forecasts due to trade war uncertainty and global growth concerns. 

But crude has recently broken out above $60. Demand concerns are starting to fade now that the trade war appears to be on a path to resolution and the global economy may be bottoming or have already seen its nadir.  With demand potential on the rise some money is starting to flow back into the underperforming Energy sector.

Streaming and Dreaming: There’s been plenty of talk this week about Netflix(NFLX) having been the best SPX stock performer of the decade. But will it be able to stage a repeat performance? After returning more than 4,000% over the last 10 years, the streaming giant is now facing increased competition from other streaming services. Disney+ is often cited as one of the most notable new alternatives to NFLX. Still, while Disney+ might be a strong product, it’s certainly possible for both products to coexist given their stylistic differences in content. There could be more competition from AMZN’s Prime streaming service. The services are trying to differentiate themselves and keep subscribers loyal with original content. And while that can be expensive, it’s expensive for everyone. Any advantage may come down to how widely these companies are willing to open their pocketbooks. 

Meanwhile, NFLX’s growth story is much more about the global stage rather than just the U.S. and Canada. The FAANG member recently saw its stock jump after disclosing solid international membership growth numbers. So it seems NFLX’s ability to continue to grow internationally will be crucial for its success in the coming decade. 

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This week's economic calendar. Source: Briefing.com
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Key Takeaways

  • Chinese industrial profits post growth in November

  • Nasdaq surpassed the psychologically important 9,000 mark

  • Amazon surges after saying holiday season was record-breaking

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