The Dow Jones Industrial Average came within less than a single point of Dow 20,000 before it wavered and stumbled, finally closing at 19,963 on Friday.  There are interesting micro trends that might have conspired against making history, including the fact that investors continue to pile into the same names while eschewing others.  Actually, there were more losers on the NYSE and NASDAQ while 55% of the volume on the NYSE was to the downside.  Money rotated out of Trump building names, such as Vulcan Materials (VMC) into technology stocks, including Amazon (AMZN).

Market Breadth Winners & Losers	NYSE	NASDAQ
Advancers	1432	1251
Decliners	1583	1507

Market Breadth Volume	NYSE	NASDAQ
Up	42%	58%
Down	55%	40%

Market Breadth Milestones	NYSE	NASDAQ
New 52-Week High	108	130
New 52- Week Lows	20	44

The market probably feeds more off of wages in the employment report than the lackluster overall number.  A 2.5% wage increase in November was followed by 2.9% in December, the best since June 2009, and it seems poised to be the recurring theme this year.

The question is whether the stock market rally will be the biggest recurring financial story of 2017?  At this point, it all comes down to execution. However, both the new administration and corporate America are going to have to hit their marks and move the narrative along in deed and purpose. 

There isn’t a lot of news on the docket from economic data or earnings that could carry the market alone, but watch for today’s report on the November Consumer Credit report, which will be released at 3:00 p.m., as it’s going to be interesting to see if consumers have begun to use more credit. 

Meanwhile, 2017 has been all about technology, which makes perfect sense.  Beyond Silicon Valley’s beef with Donald Trump and desire for more foreign workers, America’s tech names are leading the world in the Knowledge Century, which has already begun.  While the Dow may be on the doorstep of a major milestone, the doorstep to global preeminence is critically more important.

• NASDAQ Composite +2.6% YTD
• S&P 500 +1.7% YTD
• Dow Jones Industrial Average +1.0% YTD

Russell 2000 +0.6% YTD

Today’s Session

It’s becoming clearer that the Federal Reserve is breathing a cautious sigh of relief at the prospects of a pro-business administration pushing fiscal policy that mitigates the need for the Fed to do all the heavy lifting.

On Saturday, Governor Jerome H. Powell spoke at the 77th Annual Meeting of the American Finance Association in Chicago, Illinois and admitted what several of his peers could only hint at in recent years.  In addition, Powell, who is hard to peg as a dove or hawk, admits the risk of all the action from the Fed, but he doesn’t see bubbles.

Jerome H. Powell

January 7, 2017

"Low rates can lead to excessive leverage and broadly unsustainable asset prices - things that we watch carefully for and do not observe at this point," Powell said in prepared remarks for an economics conference in Chicago.

“Valuations as significantly out of line with historical experience.”

While equity prices have increased considerably, equity premiums, or “the expected return above the risk-free rate for taking equity risk,“ have declined but are not out of line with historical experience, he said.

"We may be moving more to a more balanced policy with what sounds like more business-friendly regulation and possibly more fiscal support," Powell told an economics conference in Chicago.”

Goldman Dumps Staples

For weeks, I’ve pointed out the weakness and vulnerability of Consumer Staples, and this morning, Goldman Sachs downgrades two of the biggest names in the sector to ‘sell’ ratings.

• Proctor and Gamble (PG)
• Coca Cola (KO)

The sector is down 6.4% over the last six months, with PG unchanged and KO -7.8%, which will see more pressure. The greater statement is intriguing because the same experts chirping about these as buys from a stronger domestic economy see the light and agree with Goldman this morning.

XLP

 

Obviously, no Dow 20,000 at the open, so let’s see what kind of rotation Goldman has sparked because Consumer Discretionary names were hammered the last couple of weeks.

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