Boeing Shakeup, China Tariff Announcement Cheers Market Heading Into Last Days Of Year

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

A question for the market today on Christmas Eve is whether we’re in for a Santa Claus rally during the last five trading sessions of 2019 and the first two of next year. 

We’ve got a shortened session in front of us where light volumes could be a feature, just like they were yesterday in all three of the main U.S. indices.

Of the big three, the Dow Jones Industrial Average ($DJI) posted the biggest percentage gain, helped by a nearly 3% rise in Boeing Co BA shares. The aircraft manufacturer, which is the biggest-weighted name in the 30-stock index, got a boost on news of the ouster of its CEO amid the fallout relating to its troubled 737 MAX program. The news also helped to boost the Industrials sector as a whole.  

Boeing’s board voted to oust former CEO Dennis Muilenburg effective immediately. He will be replaced by the Chairman David Calhoun beginning Jan. 13, Boeing said in a statement on Monday. Calhoun was a General Electric Company GE veteran who had been chairman since October. CFO Greg Smith will serve as interim CEO during the transition. Director Larry Kellner, who once led Continental Airlines, will replace Calhoun as chairman in a move to continue keeping the roles separate.  

Investors appeared to welcome the news as BA’s stock rallied on the announcement. Investors seem to be hoping Calhoun will be the man to resolve the 737 Max crisis and ease tensions with the FAA and the major airlines.

The market also seemed to be welcoming news that China said it would lift tariffs on hundreds of U.S. products.

That represents the latest in the trade war detente between the world’s two largest economies that has been one of the big tailwinds helping propel the market to record highs as we’ve been getting closer to the end of the year. 

And while history doesn’t guarantee the future, Dow Jones Market Data figures since 1950 reported by MarketWatch suggest 2020 could be another up year for the market. The article noted that when the S&P 500 Index (SPX) ends one year with a gain of at least 20%, the broad index tends to average an annual gain of 11.2% in the following year. As of Monday’s close, the SPX was up more than 28% so far this year.

In economic news, durable goods orders in November posted an unexpected loss of 2% after a downwardly revised reading of 0.2% growth the prior month. For the most recent number, a Briefing.com consensus had expected a rise of 1.4%. 

New home sales also missed expectations. (See more below.)

But in another sign that the U.S. consumer is doing well, sales on Super Saturday—the Saturday before Christmas—topped $34 billion, marking the biggest single day in U.S. retail history, according to media reports citing data from Customer Growth Partners. 

Domestic consumer spending has been bolstered this year by lower interest rates and a tight jobs market. When people feel secure in their earning potential and ability to repay debt, they can be willing to spend more money at the cash register and computer. 

CHART OF THE DAY: NOTE OF CAUTION? We're finishing out 2019 with major stock indices such as the S&P 500 (SPX - purple line) poised to post strong gains. But in recent days, it’s not just stocks. Gold (/GC - candlesticks)—traditionally thought of as a safe-haven investment and hedge against inflation—has also been doing well, even as stocks moved to record highs. Might the gold market be flashing the yellow light of caution as we close out the year? Data sources: S&P Dow Jones Indices, CME Group. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.  

Tight Supply for Affordable Homes: While this week is pretty light on the data front, we did see an important number from the housing market yesterday. New home sales for November increased to a seasonally adjusted annual rate of 719,000 units. While it is good to see an increase, the new number was just 9,000 higher than the prior period’s downwardly revised 710,000. And it missed a Briefing.com consensus expectation that the number would hit 735,000 units. Still, all this doesn’t necessarily spell doom and gloom for the housing market.

“The key takeaway from the report is that it appears as if new home sales, like existing home sales, were crimped in November by a lack of available supply at more affordable price points,” Briefing.com said. 

Growth and Value: According to investment research firm CFRA, the last 10 years was a decade oriented toward growth stocks as the S&P 500 Growth Index surged 234% while the Value Index gained 145%. During that time, Consumer Discretionary, Health Care, and Technology led the way while communications services and materials lagged and energy fell in price.

“What awaits investors in the coming decade?” CFRA said. “No one knows for sure, but on a sector level, history implies (but does not guarantee) that the best sectors in the prior decade will not repeat as leaders in the coming decade.” The research firm notes that the top three sectors from 1989 through 1999 ended up falling an average of nearly 28% in the 2000s, while the three worst sectors gained an average 46%. Then, the three top sectors in the 2000s gained an average of 80% in the 2010s, while the bottom three jumped 184%.

Technology Staying On Top: With the good vibes on the trade front yesterday, it wasn’t too surprising to see the Technology sector being one of the day’s gainers. As we noted in our review of the stock market’s 2019 winners and losers, this sector has been the biggest of the stock market winners so far this year. Because technology companies often have exposure to China in terms of sales and supply chains, these stocks have spent much of the year attuned to the ebbs and flows of news on trade negotiations between the world’s two largest economies.

The sector saw some downturns during the year. But, like many other stocks, tech shares gained steam toward the end of 2019 as investor expectations increased that the two nations would get a deal done and then on the news that a phase one deal had been agreed to.

Information from TDA is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade.

Image by Nel Botha from Pixabay