As you might recall, the last month of 2018 wasn’t so friendly. The S&P futures lost 18% peak-to-trough.  It was ugly, and it was only curtailed by intervention.

Intervention?

To counter the indiscriminate selling of stocks, on December 23rd, we had a response from the U.S. Treasury Secretary (a call out to the major banks) and, the following day, a meeting of the “President’s Working Group” on financial markets.  That was an intervention signal.  When stocks re-opened after Christmas the bottom was in — stocks rallied 7% over the last four days of the year.  The S&P 500 is now up 34% from the December 26th low.

What has changed?  The two most powerful central banks in the world (the Fed and the ECB) that were creating a dangerous headwind for the global economy, have since become a tailwind.

As I said in my January 2nd note, if we look back through history, major turning points in markets have often been the result of some form of intervention.  We had intervention, and we had a major turning point.

Now, let’s take a look at a chart of the notable laggard in the U.S. indicies this year:  small caps.  I say laggard not because the small cap index hasn’t had a good year, but because it still requires another 8% to return to the record highs of last year.  But today, it’s finally breaking out.