Market Outlook - Rally Defies the Odds
What a week! Stocks continued to defy the odds by making their sixth weekly gain in a row, with very little news (and even less good news) as a prompt. How much longer can this go on, and catalysts are in store for the coming week? Keep reading. Oh, and be sure to check out the earnings calendar/forecast all the way at the bottom.
As we mentioned in the prior Weekly Market Outlook, last week was a light week in terms of the amount of economic news. And, despite the mostly-bearish data we were thrown, stocks still managed to make a little bullish progress…. a reality we deal with in the chart discussion below.
The only good news, really, was the strong increase in pending home sales – they were up 8.2%. The ISM Services Index was up as well, but doesn’t have a great deal of measurable impact on the market or economy.
Thursday’s jobless data by far got the most attention, but it was a split decision. Initial claims reached 460K, topping the expected 435K, and thwarting what appeared to be a developing downtrend over the last three months. Conversely, continuing claims fell to 4550K, versus the average estimate for a reading of 4630K. On the continuing claims front, that small downtick offers hope at a time it was needed – the number had been rising since mid-February.
That said; note that the continuing claims data is one week behind the initial claims data (the cont. claims number was for the week ending March 27th). So, the message isn’t as completely mixed as it may seem on the surface.
The ‘biggie’ on the economic front didn’t get as much attention… the drastic reeling in of consumer credit availability. Not only was January’s $5.0 billion increase in consumer credit levels the first increase in years, the number was revised a month later to a whopping $10.6 billion. Now it’s all gone – February’s consumer credit availability contracted by $11.5 billion.
As for the coming week, inflation is on tap for Wednesday…. should be big. Analysts continue to look for tepid increases (0.1%), somewhat defiant of a low interest rate environment in a growing economy. If inflation remains contained, and if retail sales for last month are as strong as expected (up 0.5%, ex-auto), it could be a major catalyst. And just so you know, March’s same-store (year over year) sales results were higher by an average of 9.1%, according to preliminary numbers.
On Thursday, look for capacity utilization and industrial production numbers. Yes, the unemployment claims data comes out then too, but that’s weekly data, and it’s well understood where we are on those fronts. The capacity utilization and production data is monthly data, doesn’t get much love from the media, but has actually demonstrated a great deal of value to us as a long-term market barometer. In fact, we’ll plot them below, just so you can see. Look for an update of the chart next week. (Note we’ve plotted the production index – not the actual percent change the Federal Reserve usually refers to in the release.)
Capacity Utilization and Industrial Production
On Friday, we’ll round things out with building permits and housing starts; the former is expected to be lower, while the latter should be higher.
S&P 500 Index
Forty-one days. That’s how old this rally is now. Oh, there have been a few bumps and scrapes along the way, but nothing corrective enough to say the streak’s been broken. Just for the record, this run is now the longest-running rally we’ve seen since the mid-70’s. Impressive? Yes? Worrisome? Yes to that too.
The CBOE Volatility Index (VIX) also closed at new 52-week lows on Friday, telling us that investors are generally less fearful now than they’ve been since May of 2008, which – ironically – is when things went from bad to worse for bear market.
We’ve been doing plenty of up-close, detailed technical analysis of the S&P 500’s chart of late. Just to mix things up though (since this rally has not only defied logic, it’s also defied all normal technical trading tendencies), today’s we’ll take a chance to step back and really soak of some perspective on where the SPX has been over the last 104 weeks (two years). It’s all on the chart below.
S&P 500 Daily Chart
There’s not a lot of commentary to make – it is what it is. The only observations we’ll offer are that the overall pace of the new bull market seems to be slowing (as one would expect), and that the ebb and flow cycle (the one that fuels secondary trends within the bigger bull trend) looks like it’s running out of steam as the index bumps up into the upper 50-day Bollinger band. Yet, the bulls don’t seem willing to yield – the S&P 500 was up 1.38% last week.
Sometimes it’s good just to take a step back and look at the forest rather than scrutinize each and every tree.
The financial stocks were the quiet winners last week, up 2.8% while consumer discretionary stocks continue their romp with a runner-up finish (the consumer discretionary sector is still the top performer for the last six months).
At the bottom of the barrel you’ll find healthcare with a 0.6% loss, and telecom with a near-breakeven performance. Both were in the middle ground last week, though telecom has been a habitual laggard for several months.
Sector Ranking – One Week
Though the financials sector’s strength really didn’t show up for any one particular industry, it’s pretty clear what’s driving the consumer discretionary sector’s rally…. toys and games (metaphorically speaking). Worth a look, though at this point there may be more risk than reward.
In the loser column, fertilizer and agricultural chemicals continue to struggle …a long-standing weakness. Auto parts also struggled though, and that’s something new. Perhaps it’s time to take the hint (and some profits). And, managed health care plans eased as the downside of the new health care regulations starts to weigh in.
Industry Ranking – One Week
It’s that time of year again – earnings season. Alcoa is the official beginning of it, though a few others have and will chime in prior to the aluminum company’s announcement of last quarter’s numbers. Here’s a list of the major ones for the coming week.
TradeKing is not associated with, and does not endorse or sponsor the author of this content.
AutoTrade may not be suitable for all investors. The AutoTrade service is designed as a closed end service, where you intend to follow the trade recommendations of the newsletter. If you intend on not following the trade recommendations of the newsletter in full then AutoTrade may not be for you. TradeKing is not affiliated with, does not sponsor, is not sponsored by, does not endorse, and is not endorsed by the Newsletters or any of their affiliated companies included in the AutoTrade program.
Any strategies discussed and examples using actual securities and price data are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. In reading content in the Trader Network, you may gain ideas about when, where, and how to invest your money. Although you may discover new ideas or rationale that may be compelling, you must ultimately decide whether or not to put your own money at risk. Consider the following when making an investment decision: your financial and tax situation, your risk profile, and transaction costs.