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After The Close - The stock market began the first full week of trading in the new year on a favorable note, partly on optimism that upcoming trade talks with China will be successful. At the close, the Dow Jones Industrial Average climbed 98 points; the NASDAQ rose 85 points; and the S&P 500 gained 18 points. Market breadth affirmed the bullishness of the major averages, with winners easily outpacing decliners on both the Big Board and the NASDAQ.

The advance was notable in that it built on Friday’s outsized gains. Oftentimes there is a bit of a pullback after impressive market moves to the upside, such as Friday’s 747-point rise on the Dow. Today proved more of a follow-up to the improved sentiment exhibited late last week.

In addition to hopes that a practical settlement on trade and tariffs with China might soon be reached, the better tone to the market was supported by the view that interest rates hikes by the Federal Reserve may soon be on hold.

The Fed has indicated that mild inflation data would provide it with the flexibility to set policy in the coming months.

Meanwhile, this morning’s business data showed slowing momentum in the services sectors, as measured by the Institute for Supply Management’s December reading. On the whole, recent economic data has had a mixed feel, potentially giving the Federal Reserve the leeway to hold off on raising rates. Small capitalization stocks seemed to be helped by the view that interest rates are leveling off.

Among the market’s major sectors, consumer-related stocks, such as retailers, were especially strong. There are indications that the just-ended holiday season was very solid in terms of merchandise sales.

Energy stocks also rose, helped by higher oil quotations. The price of a barrel of crude oil in New York trading moved ahead by more than 1%, to above $48 for the domestic benchmark, on word that Saudi Arabia plans to reduce production to balance the market. A weekly industry report on Friday also showed fewer drilling rigs working in the United States.

Some of the poorer-performing sectors included utilities and government bonds, traditionally perceived as safe havens.

In corporate news, drug maker Eli Lilly (LLY) announced that it is buying Loxo Oncology (LOXO) for $8 billion. Lilly shares moved up modestly on the news, while Loxo shares soared.

Although stocks finished off of their best levels, this was a constructive session with the focus on positive developments. - Robert Mitkowski

At the time of this writing, the author did not have positions in any of the companies mentioned.

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Before The Bell - Fresh off a very difficult fourth quarter of trading to end 2018, one that included a bearish month of October and one of the worse Decembers on record since the 1930s, investors were hoping for a better start to 2019. However, what the first three days of the new year brought was another rollercoaster ride for those long equities. There are a number of variables that are on the minds of investors these days and resulting in swift and very pronounced swings in the direction of trading on what seems like a daily basis. Overall, the volatility in the equity market has spiked over the last three-plus months of trading, with the CBOE Volatility Index (or VIX), also known as the “fear gauge,” currently trading at 22.56, a level that continues to suggest that the market is oversold.

Last week, as noted, it was another rollercoaster ride when investors returned from the New Year’s Day respite. On Thursday, the equity market sold off sharply only to then retrace those losses and then some on Friday. The selling last Thursday was prompted by many of the same worries that unnerved investors in the fourth quarter, including concerns about the strained trade relations between the United States and China, slowing global growth, particularly in China, and the continued shutdown of the U.S. Federal Government, but also some new fears. Specifically, investors were shaken by a report on manufacturing activity that showed the biggest monthly decline since 2008 and news from technology behemoth Apple (AAPL Free Apple Stock Report) that iPhone shipments were weaker-than-expected in the fourth quarter, hurt by decreased sales in China. The Asian nation is a very important market for iPhone sales and the drop in demand rattled the technology sector. Then on Friday, the major equity averages recovered sharply, with a strong report on the labor market (December nonfarm payrolls climbed by more than 300,000 positions and the November figure was revised higher), news that trade talks between the world’s two-largest economies are to resume again and comments from Federal Reserve Chairman Jerome Powell that the central bank is not wedded to one specific course of action with regard to monetary policy going forward viewed positively by the investment community.

The final trading day of last week saw the Dow Jones Industrial Average, the NASDAQ, and the broader S&P 500 Index climb a whopping 747, 275, and 84 points, respectively, with the technology heavy NASDAQ recovering from Thursday’s sharp selloff with the intra-day gain of more than 4%. The bargain hunting was broadbased, with the small-cap Russell 2000 also up nearly 4%.Overall, each of the 10 major equity groups finished sharply higher, with the leadership coming from the economically sensitive sectors, most notably the technology, basic materials, industrial, and consumer discretionary areas. Likewise, advancing issues led decliners by a whopping margin on both the New York Stock Exchange and the NASDAQ.

Turning to the week at hand, the first full trading stretch in 2019 will start with many of the same issues on the minds of investors, including the trade dealings between the U.S. and China, the Federal Reserve, the government shutdown, the bickering on Capitol Hill, and the U.S. economy. On the trade front, talks are set to begin today, and this week will bring a few notable reports on U.S. economy, including the latest reading on nonmanufacturing activity at 10:00 A.M (EST) this morning. Later this week, we are scheduled to get data on producer and consumer prices and the minutes from the last Federal Reserve monetary policy meeting on Wednesday afternoon. However, the ongoing government shutdown may delay the release of the pricing data from the Labor Department, and push more of the investment community’s attention to the trade talks, especially with earnings news remaining light this week.

With less than a half hour to go before the commencement of the new trading week on Wall Street, the equity futures, which are bouncing around the neutral line, are indicating a somewhat directionless opening for the U.S. stock market. So far today, the trading has been mixed overseas, with the main indexes in Asia finishing higher overnight, while the major European bourses are in the red as trading moves into the second half of the session on the Continent. Our sense is that trading this week will be primarily driven by what news emerges from the trade talks between the U.S. and China. Investors also should note that the new week has brought some M&A news, with reports surfacing that drug maker Eli Lilly (LLY) is acquiring Loxo Oncology (LOXO) for $8 billion. Shares of the pharmaceutical giant are indicating a lower start to trading on the deal news. Stay tuned.   - William G. Ferguson       

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.