Market Data Point to a Sustained Rally

Summary

WSJ Your Money Briefing

Episode: Market Data Point to a Sustained Rally
Date: February 25, 2019
Host: J.R. Whalen
Guest: Jessica Menton, Wall Street Journal Markets Reporter

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Episode Overview

This episode explores the significant rebound in U.S. stock markets in early 2019, with a focus on whether market data suggest the rally can be sustained. Host J.R. Whalen and markets reporter Jessica Menton discuss the driving forces behind the rally, what investors are watching, and the broader economic context, including Federal Reserve policy, trade negotiations with China, and underlying market indicators. The conversation breaks down recent trends, key metrics, and possible risks investors should be aware of.

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Key Discussion Points & Insights

Market Context & Recent Performance

• S&P 500 Uptrend:
  • The S&P 500 has risen about 11% since the beginning of 2019, sharply rebounding from the steep declines in Q4 2018.
  • "The S&P 500 is up about 11% so far this year. That's sharply higher than its performance in the fourth quarter. Market data says it could go even higher." — J.R. Whalen (00:38)

Economic and Market Drivers

• Monetary Policy and Trade:

  • Investors are watching two key events: Fed Chair Jerome Powell’s upcoming Congressional testimony and the U.S.-China trade deadline on March 1.
  • "We've got sort of a perfect storm in a good way involving trade and the Fed that could keep that rally going." — J.R. Whalen (01:33)
  • "Looking ahead to this week, we're going to keep a lookout for Jerome Powell ... and we also have the trade deadline between the U.S and China on March 1. So those are two big catalysts that investors are keeping on their radar." — Jessica Menton (02:37)

• Economic Reports:

  • Fourth-quarter GDP data will be released soon. While it's a lagging indicator, it corresponds to the important holiday quarter and is thus closely watched.
  • "Consumer spending is really what drives the economy. That's two thirds of growth ... we've had retail sales numbers come in, not quite as strong as people were expecting, but still the market didn't necessarily sell off on that data like it did in the fourth quarter when rallies weren't really holding. And we've seen the rallies really sustain this year." — Jessica Menton (03:11-03:49)

Sector Performance and Market Breadth

• FANG Stock Recovery and Healthy Broad Leadership:

  • While tech giants—Facebook, Amazon, Apple, Netflix, Google—are rebounding, the rally is now more broad-based, led by a combination of industrials, energy, technology, consumer discretionary, and to a lesser extent, financials.
  • "They're not the only ones that are leading the market right now. ... What's really leading it is industrials, energy, technology and consumer discretionary. ... Because it's more broad-based, that's a more healthy indication of the market." — Jessica Menton (04:08)

• NY Stock Exchange Advanced-Decline Line:

  • The NYSE’s “advanced-decline line”—a technical measure charting the number of stocks rising vs. falling—is bullish, indicating that many stocks across sectors are hitting new highs.
  • "If you look at the S&P 500 since their lows to now, it's about 90% of stocks are hitting new highs. And that's another strong bullish signal that investors are looking at." — Jessica Menton (05:39)

Cautions and Risks

• Potential Disruptors:
  • Despite strong momentum, markets remain sensitive to new developments—especially shifts in trade negotiations or surprises from the Fed.
  • "We saw that in the prior quarter and a lot of investors at that point, even towards the end of December kept mentioning, you know, this could quickly turn depending on what happened with trade and what happened with the Fed." — Jessica Menton (06:05)
  • Fed policy changes, especially regarding their balance sheet or approach to interest rates, remain key concerns for investors watching for liquidity and growth signals.

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Notable Quotes & Memorable Moments

• Market Breadth as a Bullish Signal:
  "Because it's more broad-based, that's a more healthy indication of the market. If you have only a certain amount of stocks that are really leading a rally, that's not healthy. But when you have it broad-based like this, that's a more indication that more stocks are hitting new highs."
  — Jessica Menton (04:08-04:52)

• Advanced-Decline Line Explained:
  "That's another strong bullish signal that investors are looking at."
  — Jessica Menton (05:56)

• Need for Vigilance:
  "Things can come out of nowhere and torpedo a rally ... investors are really going to look ahead to what Powell has to say about that."
  — J.R. Whalen / Jessica Menton (05:56-06:55)

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Timestamps for Important Segments

• 00:38–01:33: Overview of the market’s strong start in 2019 and the backdrop of Q4’s decline.
• 02:37–03:11: Key upcoming catalysts—Fed testimony, U.S.-China trade.
• 03:11–03:49: Importance of GDP and consumer spending data.
• 04:08–04:52: Broad-based market rally explained and why it’s a healthy sign.
• 05:02–05:56: Technical discussion of the NYSE advanced-decline line as a bullish indicator.
• 06:05–06:55: Discussion of risks and the importance of monitoring Fed actions and trade developments.

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Conclusion

The episode provides a comprehensive look at why the market rally in early 2019 may have staying power, emphasizing the breadth of the recovery, strong economic data, and the importance of watching upcoming policy signals from the Fed and trade negotiations. While optimism dominates, both host and guest remind listeners that unexpected events could still disrupt momentum—underscoring the continual need for vigilance in market monitoring.

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For more detailed market analysis, visit: WSJ Markets Coverage

Featured Speaker:

• Jessica Menton, WSJ Markets Reporter

Host:

• J.R. Whalen, Wall Street Journal

Transcript

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[J.R. Whalen]

With your Money briefing. I'm J.R. whalen at the Wall Street Journal in New York. The S&P 500 is up about 11% so far this year. That's sharply higher than its performance in the fourth quarter. Market data says it could go even higher. We'll break down the numbers in a moment. First, these money and market stories. You should know the housing market could be in for a strong spring season. That's because rates for home loans have fallen to their lowest level in more than a year. The 30 year fixed rate mortgage averaged 4.35% in the week of February 21st. That's the lowest since February of last year. And the 15 year adjustable rate mortgage averaged 3.78%. That's down 3 basis points from a week earlier. And the tight labor market with unemployment at 50 year lows could usher in higher inflation. That's the view of economists at Columbia University, the University of Chicago and Deutsche Bank. They argue that as unemployment drops, it falls below a level thought to be consistent with stable prices. That's also known as the Phillips Curve. And while that theory has held up in the past, the current economic climate presents a bit of a conundrum. The Federal Reserve's view is that the unemployment rate, which stood at 4% in January, is below the level consistent with stable prices. But inflation hasn't accelerated much over the past two years, leading to some doubts over the strength of the relationship between prices and unemployment. They say what goes up must come down. But how about after what goes down, goes up and stays up? Well, that could apply to the stock market if we look at factors driving the current rally, in fact. And Wall Street Journal reporter Jessica Menton is here with some details for us. So Jessica, after the market's steep decline of the fourth quarter, we've seen a roughly 11% run up by the S&P 500. We've got sort of a perfect storm in a good way involving trade and the Fed that could keep that rally going.

[Jessica Menton]

And looking ahead to this week, we're going to keep a lookout for Jerome Powell, the Federal Reserve chair. He has two days of testimony on Tuesday and Wednesday. And we also have the trade deadline between the U.S. china on March 1. So those are two big catalysts that investors are keeping on their radar to see more as far as looking at the health of the economy. And then also as far as what's going on with trade tensions between the US and China.

[J.R. Whalen]

And then also the market could get a shot in the ARM on February 28th. On Wednesday we hear about fourth quarter GDP.

[Jessica Menton]

Yes. And that potentially is typically a more backward looking indicator because it is for the fourth quarter. But at the same time that is supposed to be the big holiday quarter. Consumer spending is really what drives the economy. That's two thirds of growth right there. And so economists and investors are still going to hone in on it. But we have gotten some indicators since then to give them a bit clearer picture. We've had retail sales numbers come in, not quite as strong as people were expecting, but still the market didn't necessarily sell off on that data like it did in the fourth quarter when rallies weren't really holding. And we've seen the rallies really sustain this year. And I think that's a healthy, you

[J.R. Whalen]

know, the so called Fang stocks, Facebook, Amazon, Apple, Netflix and Google, they shot up sharply last year, then suffered broad declines in the fourth quarter. Now they're recovering more moderately and market analysts seem to like that.

[Jessica Menton]

They do. And the reason is because they're not the only ones that are leading the market right now. They are doing well, but what's really leading it is industrials, energy technology and consumer discretionary. And then financials are a little bit further in that sort of same realm there. And because it's more broad based, that's a more healthy indication of the market. If you look towards last year and in 2017, ahead of the fourth quarter, of course tech was the darling. But if you have only a certain amount of stocks that are really leading a rally, that's not healthy. But when you have it broad based like this, that's a more indication that more stocks are hitting new highs than those that.

[J.R. Whalen]

You also mentioned something a bit more technical in your story in the Wall Street Journal. It's another bullish indicator. The NYSE's advanced decline line. What exactly is that?

[Jessica Menton]

Now that's exactly kind of what I was just hinted at as far as more stocks hitting new highs than those that aren't. And that really is an indication of investors saw a lot of different buying opportunities after last quarter because things were of course tech was really beaten up, but so were a lot of other cyclical sectors when look at industrials and energy and technology also and the fact that they're not just going into one place but they're seeing buying opportunities all over the place. And that's why you're continuing to see these stocks hit new highs. And when I've talked to investors, they've really been honing in on that data as well as when you're looking at certain moving averages. So if you look at the S&P 500 since their lows to now, it's about 90% of stocks are hitting new highs. And that's another strong bullish signal that investors are looking at.

[J.R. Whalen]

And with all these positive signs, we do have to make sure we're ready for any dose of reality that comes along the way things can come out of nowhere and torpedo a rally.

[Jessica Menton]

We saw that in the prior quarter and a lot of investors at that point, even towards the end of December kept mentioning, you know, this could quickly turn depending on what happened with trade and what happened with the Fed. And a lot of things that they said ended up happening. You saw the Fed multiple times come out once we saw certain jobs report numbers. When the Fed had their meeting in January, they really signaled that they were going to be more flexible with their approach. And so investors are really going to look ahead to what Powell has to say about that. As far as also his the balance sheet that the Fed has, their unwinding, that was something that also caused some concern at the end of, of last quarter in what some people were pointing to is that prompted the sell off as far as taking liquidity out of the financial markets globally. But that's something that people are going to really look to as well as their outlook for economic growth.

[J.R. Whalen]

All right, well it's a good reason to come to the Wall Street Journal, WSJ.com, the WSJ app. Check out the markets coverage. They cover Wall street in very granular fashion but also in language we can all understand. And that's markets reporter Jessica Menton here in our studio. Jessica, thanks for stopping by.

[Jessica Menton]

Thanks so much for having me.

[J.R. Whalen]

And that's your money briefing. I'm JR Whalen in New York for the Wall Street Journal.

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