Stocks had a fantastic run on Friday. A sign of the times was how GE stock rallied in the face of disappointing results to close up 0.97%. EPS was 29 cents, missing the estimates for 49 cents and the full year guidance was cut from $1.60-$1.70 to $1.05-$1.10. The S&P 500 was up 0.51% and the Russell 2000 – RUT was up 0.48%. GE helped the Dow rise 0.71%.
As you can see from the table below, the Dow is at the ninth most overbought level since 1900 according to the 14 day relative strength index. The S&P 500 tied the record long streak for trading days without a 3% correction. While many bears will complain the market never goes down, why should it? The economic data has been largely positive and earnings are only temporarily weak this quarter because of the hurricanes. The overbought nature of the Dow probably means it won’t continue to rise at such a torrid pace next week unless tax reform is passed. However, this situation is different from what I described the Russell 2000 could do when it was overbought because the Dow has a lower beta. A flat market for a few days should bring the RSI to a level closer to normal.
President Trump Speaks About Fed Pick
For the first time in a few weeks, President Trump spoke about who he will pick to be the next Fed chair. It was a confusing statement because he at first seemed to give away who it might be and then said they were all in consideration. Maybe he did that to show respect to all candidates. He said “most people are saying it’s down to two — Mr. Taylor and Mr. Powell. I also met with Janet Yellen, who I like a lot, I really like her a lot. So I have three people that I’m looking at, and there are a couple of others. I’d say I will make my decision very shortly.” I find it weird that he said what ‘most people’ are saying because it only matters what he says.
Before this statement it seemed like it was going to be Powell for sure. It now seems like it’s down to Powell and Taylor. It’s weird how he constantly praises Yellen after criticizing her so much in 2016. It may just be to calm the markets because there’s still going to be a transition period after he makes his choice where the Senate needs to confirm the nomination. I expect the confirmation to go smoothly if it isn’t Yellen or Cohn. Cohn would get criticized for a lack of experience. Even though President Trump now likes Yellen, many Republicans don’t so that would be an uphill battle as well.