U.S. markets rebounded on Friday following a strong jobs number and optimism surrounding the scheduled trade talks between the U.S. and China, which will begin on Monday.

Soothing comments from the Fed and news that the U.S. House passed a spending bill package in an effort to end the partial government showdown also helped sentiment.

The Nasdaq zoomed 4.3% following the intraday push to 6,760.

Fresh resistance at 6,750-6,800 held with continued closes above the latter being a bullish signal for a possible run towards 7,000 and the 50-day moving average.

The Russell 2000 jumped 3.8% after reaching a peak of 1,383.

Lower resistance at 1,380-1,400 was cleared and held with a close above the latter signaling additional strength towards 1,425.

The Russell 2000 was up 3.3% for the week while the Nasdaq rose 2.4%.

The Dow rallied 3.3% following the midday run to 23,518.

Prior and lower resistance at 23,400-23,600 with continued closes above the latter getting 23,800-24,000 back in play.

The S&P 500 soared 3.4% after tapping a session high of 2,538.

Lower resistance 2,525-2,550 was cleared and held with a move above the latter being a continuing bullish development.

For the week, the S&P was up 1.9% while the blue-chips gained 1.5%.

Technology and Communication Services were up 4.4% and 4.3% to led sector strength.

Materials and Industrials rose 3.9% and 3.8%, respectively.

There was no sector laggards.

For the week, Energy and Communication Services rose 4.9% and 4.1%. Real Estate was down 0.7% while Utilities slipped 0.1% and were the only sectors in the red.

The “official” start of 4Q earnings gets underway this week with the market suspect that earnings estimates likely need to fall a lot more before stabilizing.

A lot will depend on company guidance and management’s discussion of business conditions with next week’s releases from the big banks flowing in first.

Total Q4 earnings for the S&P 500 index are expected to be up 11.8% from the same period last year on 5.6% higher revenues.

Estimates have been coming down, with the current 11.8% rate down from 15.9% at the start of the quarter.

For the small-cap S&P 600 index, total Q4 earnings are expected to be up 7.1% on 6.5% higher revenues.

This would follow 33.6% earnings growth on 5.7% revenue growth in Q3.

For full-year 2019, total earnings for the S&P 500 index are expected to be up 7.5% on 5.9% higher revenues, which would follow the 20.7% earnings growth on 6.9% higher revenues in 2018.

Estimates for 2019 have been steadily coming down, with the current 7.5% growth rate down from 9.8% in early October 2018.

Global Economy – European markets posted strong gains despite slightly disappointing economic news.

Germany’s DAX 30 surged 3.4% and the Belgium20 rocketed 3%.
The Stoxx 600 Europe was higher by 2.8% and France’s CAC 40 added 2.7%. UK’s FTSE 100 advanced 2.2%.

December U.K. house prices fell 0.7% from the previous month, the biggest monthly fall since July 2012.

IHS Markit’s euro zone composite final PMI fell to 51.1 in December, down from 52.7 in the previous month. The euro zone December inflation rate, fell steeper than was expected, to 1.6%, down from November’s 1.9%.

Asian markets were mixed.

Hong Kong’s Hang Seng gained 2.2% and China’s Shanghai was up 2.1%.
South Korea’s Kospi rose 0.8%.Japan’s Nikkei sank 2.3% while Australia’s S&P/ASX 200 was lower by 0.3%.

December Nonfarm Payrolls came in at 312,000, well above estimates of 210,000.

The unemployment rate rose to 3.9% versus 3.7%. Average hourly earnings increased 0.4% versus 0.2% previously, for a 3.2% year-over-year pace versus 3.1%. The labor force rose 419,000 while household employment was up 142,000.

The labor force participation rate rose to 63.1% from 62.9%. Private payrolls were up 301,000 as the goods producing sector added 74,000 jobs, with 38,000 from construction, and 32,000 from manufacturing.

Service sector jobs increased 227,000 while government employment increased 11,000.

December PMI Services Index Level checked in at 54.4, topping estimates of 53.4. Prices charged fell 1.6 points to 53.3 and is the lowest since December 2017.

The composite index also slid 0.3 points 54.4 for the final December reading, versus November’s 54.7.

Baker-Hughes reported that the U.S. rig count was down 8 rigs from last week to 1,075, with oil rigs down 8 to 877 and gas rigs unchanged at 198.

The U.S. Rig Count is up 151 rigs from last year’s count of 924, with oil rigs up 135 and gas rigs up 16. The U.S. Offshore Rig Count is down 2 rigs to 22 and up 5 rigs year-over-year.

Market Sentiment – Fed Chairman Powell’s interview soothed fears he and the FOMC were out of touch with global conditions.

He remarked several times and underscored that the Fed would be patient and flexible with respect to the policy path, and would adjust policy as conditions warranted. That helped unwind market misperceptions that the course of policy normalization was on auto pilot.

He added the Fed would be patient in its approach.

The comments, along with Powell’s view that the Phillips Curve linkages are weak (though not necessarily dead), have suggested there is not a lot of concern over runaway inflation that would force a more aggressive policy response.

Powell did note the various downside risks that are still in place, but for now sees a solid U.S. economy with muted inflation.

He said he wouldn’t resign if requested to do so by President Trump and has received no direct communication from the president, while having no scheduled meetings with him either.

On China, Powell noted consumers seem to be pulling back and there is some spillover weakness to other emerging Asian economies.

He noted the conflicting market signals, saying policy is all about risk management and that there is no preset path to policy.

On the balance sheet, Powell said it was to be operational in the background, while interest rates would be the main policy tool.

He noted the Fed was prepared to change the normalization path if need be.

Cleveland Fed Loretta Mester said the FOMC is trying to gear the economy and that it was a calibration exercise.

She said policymakers are trying to prevent the economy from overheating, though while not putting the brakes on.

She thinks the Fed is in a really good spot on policy, not ahead of the curve or behind it, and they have time to assess the situation.

Mester acknowledged the Fed has 2 more hikes in their forecast for this year, but added they will monitor conditions and will adjust policy to how the economy performs.

On the balance sheet, she is very supportive of what the Fed is doing, but she doesn’t agree with the interpretation that analysts have forgotten about the balance sheet.

She said auto pilot means the Fed set a plan, but remain open to changing the path if economic conditions change. While growth is slowing from the 3% pace last year, she doesn’t see a recession.

The iShares 20+ Year Treasury Bond ETF (TLT) had its 5-session winning streak snapped after tumbling to a low of $121.65.

Fresh support at $121.50-$121 held with a move below $120 signaling a near-term top.

Lowered resistance is at $122.50-$123.

RSI is back in a downtrend with support at 65-60. A close below the latter would signal additional weakness. Resistance is at 70.

Market Analysis – The Spider S&P 500 ETF (SPY) was up for the 5th time in u sessions following the rebound to $253.11.

Fresh and lower resistance at $253-$253.50 held with continued closes above $255 being a more bullish development.

Shaky support is at $250-$247.50. A move below back below the latter reopens risk towards $245.

RSI is back in an uptrend with resistance at 50.

A move above this level would signal additional strength towards 55-60. Current support is at 45-40.

The iShares PHLX Semiconductor ETF (SOXX) was up for the 6th time in 7 sessions after testing a high of $155.96. Near-term resistance is at $156-$156.50 held. Continued closes above $157.50 would be a bullish setup for a possible push towards $160 and the 50-day moving average.

Rising support at $155.50-$155. A close below the latter would signal additional weakness towards $152.50-$152.

RSI is in a slight uptrend with resistance 50.

A close above this level would signal additional strength. Support is at 40 with a move below this level signaling additional weakness.

The percentage of Nasdaq 100 stocks trading above the 200-day moving average closed Friday at 25.24% with the session peak reaching 28.15. Lower resistance at 27.50%-30% was breached with a move above the latter signaling additional strength.

Rising support is at 25%-23.50%.

The percentage of S&P 500 stocks trading above the 50-day moving average settled at 11.50% with the session high tapping 11.70%. Resistance is at 13.50%-15% with a close above the latter signaling additional strength.

Support is at 10%-7.50%.

All the best,
Roger Scott.