February is the shortest month of the year and there is no specific market insight to it such as the Santa Claus rally or January effect. It is one of the poorer performing months in all three major indexes: number eight in the Dow Jones and Nasdaq Composite and number nine in the S&P 500, but averages moderately positive returns in the Dow and S&P with a more robust 0.73% in the Nasdaq.
We see today that the E-mini S&P 500 futures have broken their 2018 upward supportive trendline. Granted we are only 30 days into the year, so its not like this line has been supporting this market for a year, but it is still significant.
Last month we discussed the complexity required in testing and optimizing Arima-Garch trading models (see “Arima-Garch Out of the Lab, Into Trading,” Modern Trader, January 2018). We backtested our Arima-Garch hybrid model discussed last month to the S&P 500. Here is how it did.
Whether or not the corporate tax rate drops to 20% won’t matter much to U.S. companies, which have put up a stellar performance this year and are expected to continue their run into 2018. The S&P 500 saw earnings grow nearly 10% in 2017 (through Dec. 4), an annual rate not seen since 2011.
Far from being "breaking news", the consistently strong performance of the major U.S. (and international) equity indices is taken for granted by everyone from the richest hedge fund manager to my retired grandmother. When everything is going swimmingly on the surface, one way to gain an edge is to look "under the hood" at the factors driving stocks and the market internals.