What a week it was for equity holders and speculators!
Friday's very minor declines snapped five-day winning streaks for the major indices, with the exception of the NYSE Composite, which continued gaining for a sixth straight session.
Solid for the past three weeks, the current rally has managed to relieve the stress from steep losses incurred in December though the majors still have plenty of distance to travel. For instance, the Dow Jones Industrial Average lost 4034.23 from December 4 through Christmas Eve (Dec. 24), and has since gained 2203.75, nearly half of that amount regained the day after Christmas (Dec. 26), setting a one-day record by picking up 1086.25 points.
The other indices have exhibited similar patterns, with sudden acceleration in the final trading days of December and continuing smaller, albeit significant, positive closes on nine of the twelve sessions from December 26 through January 11.
Catalysts for the post-holiday rally continue to be diverse, the most significant strong data point coming from the BLS, which showed the economy adding 312,000 jobs for December in the most recent non-farm payroll report, released last Friday. So far beyond expectations was that number that it appeared to have kept sentiment positive for a full week after its release.
The week's most important data release was Friday's CPI number, which - thanks largely to the price of gasoline - declined 0.1% in December, and slowed to 1.9% in year-over-year measure. Core was +0.2% (mom) and +2.2% (yoy).
Slowing inflation, or perhaps, outright deflation, is anathema to the Federal Reserve, despite their all-too-frequent suggestions that they exist to keep inflation under check. The entire monetary scheme of the Fed and the global economy would disintegrate without inflation, thus the Fed will be diligent in regards to interest rates going forward. After hiking the federal funds rate at a pace of 25 basis points per quarter for the past two years, the Fed has received warnings aplenty, first from the cascading declines in the stock market, and second, from a squashing of inflation.
That CPI data, for all intents and purposes, killed any idea of a March rate hike, just as the market drop caused Treasury Secretary Mnuchin to frantically call in the Plunge Protection Team just before Christmas. The results from that plea for help have been grossly evident the past three weeks.
While the Fed believes it can control the economy, the truth is that it absolutely cannot. Bond prices and yields point that out in spades. The benchmark 10-year note yield dropped as low as 2.54% (1/3) in the face of all the recent rate hikes. As of Friday, the 2s-10s spread fell to 16 basis points. Already inverted are the 1-year and 2-year notes as related to the 5s. The 1-year closed on Friday with a yield of 2.58%; the 2-year at 2.55%; the 5-year at 2.52%, the 7-year at 2.60, and the 10-year at 2.60%.
The 2s-10s spread is the most cited and closely watched, but the 1s-7s are just two basis points from inversion, the cause, undeniably, the Fed's incessant pimping of the overnight rate.
If bond traders are acting in such a manner that they prefer short-dated maturities over the longer run, the signal is danger just ahead. Talk of an impending recession has tapered off in recent days, but the bond market's insistent buying patterns suggest that the Fed did indeed go too far, too fast with the rate hikes, spurring disinvestment and eventually, a recession.
What the Fed cannot control are human decisions. Noting the sentiment in bonds, the latest stock market gains have been contrived from the start and are certain to reverse course. As has been stated here countless times, bull markets do not last forever and Dow Theory has already signaled primary trend change twice in 2018 (in March-April and October).
The major indices have not escaped correction territory and all are trading below both their 50-and-200-day moving averages. Further those averages are upside-down, with the 200-day below the 50-day. The death crosses having already occurred, stocks will resume their reversion to the mean in the very near future.
Dow Jones Industrial Average January Scorecard:
| Date | Close | Gain/Loss | Cum. G/L |
| 1/2/19 | 23,346.24 | +18.78 | +18.78 |
| 1/3/19 | 22,686.22 | -660.02 | -641.24 |
| 1/4/19 | 23,433.16 | +746.94 | +105.70 |
| 1/7/19 | 23,531.35 | +98.19 | +203.89 |
| 1/8/19 | 23,787.45 | +256.10 | +459.99 |
| 1/9/19 | 23,879.12 | +91.67 | +551.66 |
| 1/10/19 | 24,001.92 | +122.80 | +674.46 |
| 1/11/19 | 23,995.95 | -5.97 | +669.49 |
At the Close, Friday, January 11, 2019:
Dow Jones Industrial Average: 23,995.95, -5.97 (-0.02%)
NASDAQ: 6,971.48, -14.59 (-0.21%)
S&P 500: 2,596.26, -0.38 (-0.01%)
NYSE Composite: 11,848.01, +8.70 (+0.07%)
For the Week:
Dow: +562.79 (+2.40%)
NASDAQ: +232.62 (+3.45%)
S&P 500: +64.32 (+2.54%)
NYSE Composite: +314.67 (+2.73%)
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