The S&P 500 gained 2.5% this week, rising for the third straight week and extending its rally to 10.4% since its Christmas Eve low. The Dow Jones Industrial Average gained 2.4%, the Nasdaq Composite gained 3.5%, and the Russell 2000 gained 4.8%.
All 11 S&P 500 sectors finished higher with industrials (+4.1%), real estate (+4.0%), consumer discretionary (+3.7%), energy (+3.4%), and information technology (+3.4%) outperforming the broader market.
Many have characterized the market's rally to be a technical rally from a deeply oversold condition. The market, however, has benefited from improved investor sentiment that has been lifted by the stronger than expected December employment report, the assurance from Fed Chair Powell that the Fed will be patient with its policy approach, and reports U.S.-China trade talks among deputy officials went well. Those developments have fostered a propensity to buy the intraday dips and have made the market resilient to selling efforts.
The buy-the-dip mentality lifted the market whenever it was down and allowed the S&P 500 to flirt with its 2600 level, which approximates the bottom end of the trading range that persisted for most of 2018.
Strikingly, this week's gains were forged in the face of earnings warnings from Macy's (M), American Airlines (AAL), Apple (AAPL) supplier Skyworks Solutions (SWKS), and Samsung Electronics.
It was this resilience to selling efforts amid bad news that presumably drew in sidelined participants fearful about missing out on further gains and pushed out weak-handed short sellers expecting a downturn after a 10% increase in the S&P 500 from its December 24 low.
Investors saw some room for trade optimism this week when a scheduled two-day trade meeting in Beijing extended into a third day. In addition, China's Vice Premier Liu He is reportedly expected to visit Washington for further trade talks at the end of the month.
Separately, the Federal Reserve released its minutes from its December policy meeting. The minutes revealed a view that the path of U.S. monetary policy is "less clear" than before, and a contention that the Fed can "afford to be patient" about future rate hikes.
In light of more recent remarks from many Fed officials discussing a more patient-minded approach, including Fed Chair Powell, the view communicated in the minutes wasn't altogether surprising. Still, it is this rhetoric from the Fed that is contributing to the fed funds futures market's belief that there won't be another rate hike in 2019.
U.S. Treasuries lost ground amid the gain in equities, pushing yields higher across the curve. The 2-yr yield increased seven basis points to 2.55%, and the 10-yr yield increased four basis points to 2.70%. The U.S. Dollar Index lost 0.5% to 95.68, and WTI crude rose 7.8% to $51.68/bbl.
The fourth quarter earnings reporting period will get its official start in the coming week and will be closely watched to see if the market got ahead of itself with concerns about an earnings slowdown in 2019. Additionally, there will be a key Brexit vote in the UK Parliament and continued attention to the partial government shutdown in the U.S., which is about to become the longest on record.