The first week of 2019 is over and it seemed to have a little bit of everything in it from a trading standpoint. The salient takeaway for many is that the week closed with a huge rally that was catalyzed by a comforting employment report and a comforting admission from Fed Chair Powell that the Fed will be patient with its policy approach as it watches the economy evolve.
It is said that patience is a virtue, but on Friday the word itself was a virtual call to arms for market bulls desperately seeking some assurances from the Fed that it is open to holding off on another rate hike.
The market heard what it wanted to hear, yet the truth of the matter is that Fed Chair Powell had previously offered such an assurance, saying several times before that policy is not on a preset course.
That message got muffled several times before, however, with a concurrent acknowledgment that the Fed expects the economy to evolve in a way that should allow it to handle further rate hikes. That wasn't the explicit wording from the Fed Chair, yet that was the bothersome message read between the lines by the market.
On Friday, though, Mr. Powell sounded more attentive than before to the signaling effects of the market sell-off, which was music to the ears of market bulls who construed his openness to being patient with rate hikes as an early-2019 signal that another rate hike is on indefinite hold.
That perspective will be subject to change, yet Friday's trading action seemed to suggest a belief in the market that the Fed is starting to see things the market's way -- and the market, according to the CME FedWatch Tool, doesn't see a rate hike in 2019.
One can expect this monetary policy conversation to be a dominant one throughout the year along with the conversation about U.S.-China trade issues.
A conversation about the latter is taking place today and tomorrow among deputy trade representatives in Beijing, although press reports highlighting the appearance of China's top trade official, Liu He, at today's meeting stirred some optimism that some substantive progress on trade matters could be made this week.
The latter point notwithstanding, the futures market this morning is trading in a subdued manner. The S&P futures are down two points and are trading slightly below fair value.
It's understandable in light of Friday's huge gains that there would be a cool-down period, especially since the manner in which the market traded in the fourth quarter has many participants leery of an inclination to sell into strength.
The relatively flat disposition of the futures market, then, is an understandable inclination to wait-and-see if there is selling into Friday's strength or if the market shows resilience and extends its early-2019 advance.
There is some M&A news to help things along. Eli Lilly (LLY) is buying Loxo Oncology (LOXO) for approximately $8 billion, or $235.00 per share, in cash, which is a 68% premium over Friday's closing price. So far, though, that has been an industry-specific catalyst.
The broader market is set to open on a flattish to slightly lower note in what will be a big week for Fed speak, and hopefully a week that involves an end to the partial government shutdown.