21 Feb 2014 AMC - Market facing resistance with tech lagging
Market Summary
Market Internals
Leaders and Laggards
Technical Updates
Commentaries
Closing Market Summary: S&P 500
Ends Week Below 50-Day Average
The S&P 500 began the first full week of 2015 with a slide below its 50-day moving average (2045) and found itself fighting that level once again on Friday. The benchmark index settled just below the 50-day average, losing 0.8% to lock in a 0.6% decline for the week while the Nasdaq (-0.7%) outperformed slightly, falling 0.5% for the week.
Friday's affair was a bit of a roller coaster with the first downswing coming in the early morning hours when futures retreated in reaction to a Bloomberg report indicating the European Central Bank remains unsure of a format for its QE program. The news rattled U.S. futures and markets in Europe considering a QE announcement in two weeks was all but priced in.
The early morning slip was followed by a swift recovery of the losses when the December Nonfarm Payrolls report beat expectations (252K; Briefing.com consensus 245K) on the headline level. The resulting rebound rally was short-lived, fading as soon as the cash market opened and, we would contend, as soon as participants finished reading the report.
Specifically, the lack of payroll growth took the shine off what would have been a decent report. Hourly wages declined 0.2% and November growth was slashed in half (to +0.2% from +0.4%). Once the realization that without payroll growth there can be no consumption growth sank in, equities retreated. In addition to pressuring stocks, dimming growth prospects weighed on crude oil ($48.40/bbl, -$0.41) while boosting Treasuries. The benchmark 10-yr yield fell four basis points to 1.97% after bouncing off the 1.95% level.
Cyclical sectors bore the brunt of today's losses with four of six growth-oriented groups ending in-line with or behind the broader market. Notably, the implications stemming from the absence of wage growth kept financials (-1.3%) and consumer discretionary shares (-1.1%) behind the broader market throughout the session.
The financial sector finished at the bottom of the barrel while the discretionary sector ended just above with retailers fueling the weakness. The SPDR S&P Retail ETF (XRT 95.25, -1.74) lost 1.8%. However, the widespread selling in retail stocks masked the relative strength among homebuilders. The iShares Dow Jones US Home Construction ETF (ITB 26.61, +0.07) gained 0.3%.
Elsewhere among cyclical sectors, industrials (-1.1%) finished among the laggards while energy (-0.8%), materials (-0.5%), and technology (-0.3%) outperformed.
The relative strength of the technology sector prevented the S&P 500 from revisiting its morning low. Several large cap names like Apple (AAPL 112.01, +0.12), Cisco Systems (CSCO 27.79, +0.28), IBM (IBM 159.11, +0.69), and Oracle (ORCL 43.39, -0.02) held their own while chipmakers eked out gains with the PHLX Semiconductor Index adding 0.1%.
Similar to chipmakers, the high-beta biotechnology group spent the day ahead of the broader market. The iShares Nasdaq Biotechnology ETF (IBB 313.32, -1.12) shed 0.4%, helping the Nasdaq Composite finish a bit ahead of the broader market.
Although biotechnology was able to underpin the Nasdaq, the group failed to lift the health care sector (-0.8%) ahead of the broader market as large cap components weighed.
Outside of healthcare, the remaining countercyclical groups ended near the broader market with consumer staples, telecom services, and utilities losing between 0.7% and 0.8%.
Today's participation was below average with roughly 713 million shares changing hands at the NYSE floor.
Economic data included Nonfarm Payrolls and Wholesale Inventories:
The S&P 500 began the first full week of 2015 with a slide below its 50-day moving average (2045) and found itself fighting that level once again on Friday. The benchmark index settled just below the 50-day average, losing 0.8% to lock in a 0.6% decline for the week while the Nasdaq (-0.7%) outperformed slightly, falling 0.5% for the week.
Friday's affair was a bit of a roller coaster with the first downswing coming in the early morning hours when futures retreated in reaction to a Bloomberg report indicating the European Central Bank remains unsure of a format for its QE program. The news rattled U.S. futures and markets in Europe considering a QE announcement in two weeks was all but priced in.
The early morning slip was followed by a swift recovery of the losses when the December Nonfarm Payrolls report beat expectations (252K; Briefing.com consensus 245K) on the headline level. The resulting rebound rally was short-lived, fading as soon as the cash market opened and, we would contend, as soon as participants finished reading the report.
Specifically, the lack of payroll growth took the shine off what would have been a decent report. Hourly wages declined 0.2% and November growth was slashed in half (to +0.2% from +0.4%). Once the realization that without payroll growth there can be no consumption growth sank in, equities retreated. In addition to pressuring stocks, dimming growth prospects weighed on crude oil ($48.40/bbl, -$0.41) while boosting Treasuries. The benchmark 10-yr yield fell four basis points to 1.97% after bouncing off the 1.95% level.
Cyclical sectors bore the brunt of today's losses with four of six growth-oriented groups ending in-line with or behind the broader market. Notably, the implications stemming from the absence of wage growth kept financials (-1.3%) and consumer discretionary shares (-1.1%) behind the broader market throughout the session.
The financial sector finished at the bottom of the barrel while the discretionary sector ended just above with retailers fueling the weakness. The SPDR S&P Retail ETF (XRT 95.25, -1.74) lost 1.8%. However, the widespread selling in retail stocks masked the relative strength among homebuilders. The iShares Dow Jones US Home Construction ETF (ITB 26.61, +0.07) gained 0.3%.
Elsewhere among cyclical sectors, industrials (-1.1%) finished among the laggards while energy (-0.8%), materials (-0.5%), and technology (-0.3%) outperformed.
The relative strength of the technology sector prevented the S&P 500 from revisiting its morning low. Several large cap names like Apple (AAPL 112.01, +0.12), Cisco Systems (CSCO 27.79, +0.28), IBM (IBM 159.11, +0.69), and Oracle (ORCL 43.39, -0.02) held their own while chipmakers eked out gains with the PHLX Semiconductor Index adding 0.1%.
Similar to chipmakers, the high-beta biotechnology group spent the day ahead of the broader market. The iShares Nasdaq Biotechnology ETF (IBB 313.32, -1.12) shed 0.4%, helping the Nasdaq Composite finish a bit ahead of the broader market.
Although biotechnology was able to underpin the Nasdaq, the group failed to lift the health care sector (-0.8%) ahead of the broader market as large cap components weighed.
Outside of healthcare, the remaining countercyclical groups ended near the broader market with consumer staples, telecom services, and utilities losing between 0.7% and 0.8%.
Today's participation was below average with roughly 713 million shares changing hands at the NYSE floor.
Economic data included Nonfarm Payrolls and Wholesale Inventories:
·
Nonfarm
payrolls increased by 252,000 in December after adding an upwardly revised
353,000 (from 321,000) in November while the Briefing.com consensus expected an
increase of 245,000
o The unemployment rate fell to 5.6% in December
from 5.8% in November (consensus 5.7%), but that resulted from a large decline
in labor force
o Average hourly wages in December contracted 0.2%
after increasing a downwardly revised 0.2% (from 0.4%) in November
·
Wholesale
inventories increased 0.8% in November after increasing an upwardly revised
0.6% (from 0.4%) in October while the Briefing.com consensus expected an
increase of 0.3%
o Durable wholesale inventories increased 0.8% in
November, up from a 0.1% increase in October. Large gains in professional
equipment (1.3%), machinery (0.9%), and automotive (0.6%) offset declines in
lumber (-0.5%) and furniture (-0.3%)
o Nondurable wholesale inventories increased 0.7%
in November, down from a 1.5% increase in October. Low oil prices pushed
petroleum inventories down 3.7%. That loss was more-than-offset by a 5.7%
increase in farm product inventories
Monday's session will be free of
economic data.
·
Dow Jones
Industrial Average -0.5% YTD
·
S&P
500 -0.7% YTD
·
Nasdaq
Composite -0.7% YTD
·
Russell
2000 -1.6% YTD
Treasuries
Quite a Week for the Treasury Market
·
The first
full week of trading for the month of January is done and it was a good
week for the Treasury market. Yields fell sharply across the curve.
o 2-yr -11 bps to 0.56%
o 5-yr -16 bps to 1.44%
o 10-yr -14 bps to 1.97%
o 30-yr -13 bps to 2.56%
·
Volatility
in the stock market, a continued decline in oil prices, festering deflation
concerns out of the eurozone, and a startling report that average hourly
earnings decreased 0.2% in December provided much of the
rationale for the buying interest
·
Friday's
session was ultimately governed by the recognition that the drop in average
hourly earnings should indeed leave the FOMC patient in raising the fed funds
rate
o 2-yr yield fell 5 bps to 0.56%
o Meanwhile, the fed funds futures showed a drop
in the probability of the first rate hike occurring at the September 2015
meeting from 59% to 52%
·
Over the
last 12 months, average hourly earnings are up just 1.7% versus 2.0% in
November. Other key components of
the December employment report included the following:
o Nonfarm payrolls increased by 252,000
(Briefing.com consensus 245,000) and payrolls for October and November were
revised up by a combined 50,000
o Private sector payrolls increased by 240,000
(Briefing.com consensus 235,000) and payrolls for October and November were
revised up by a combined 50,000
o The unemployment rate fell to 5.6% from 5.8%
(Briefing.com consensus 5.7%)
o The labor force participation rate fell to 62.7%
from 62.9%, which helped to explain the drop in the unemployment rate
·
Wholesale
Inventories for November increased 0.8% (Briefing.com consensus 0.3%), yet
wholesale sales fell 0.3%. That pushed up the inventory-to-sales ratio to 1.21
from 1.20
o Briefing.com boosted its Q4 GDP forecast this
week to 3.6% from 3.2%, driven by the smaller than expected net export deficit
and the jump in wholesale inventories
·
Oil
prices were volatile on Friday. Down more than 3.0% in morning action, they
snapped to attention in the afternoon and settled down 0.9% at $48.36/bbl
·
Precious
metals prices drew some buying interest, supported by a weaker dollar and the
thought that major central banks are going to remain extremely accommodative
(and boost accommodation in some cases)
o Gold +0.9% to $1219.20/troy oz.
o Silver +0.3% to $16.44/troy oz.
·
U.S.
Dollar Index dropped 0.5% as tempered rate hike expectations took a little
shine off the greenback
o EUR/USD +0.4% to 1.1842
o USD/JPY -1.0% to 118.60
·
2-10-yr
spread held steady at 141 bps
The Week Ahead:
·
There is
no data on Monday. Atlanta's Lockhart discusses monetary policy (12:40).
Treasury will auction $24B 3Y notes.
·
Data
kicks off for the week on Tuesday with JOLTS -- Job Openings (10) and the
Treasury Budget (14). Treasury will hold a $21B 10Y note reopening. Minny's
Kocherlakota opines on "Goal-Based Monetary Policy Report"
(17).
·
Wednesday's
data is heavy as the weekly MBA Mortgage Index (7), retail sales, import/export
prices (8:30), business inventories (10) and the Fed's Beige Book (14) are due out.
Treasury will reopen $13B 30Y bonds. Philly's Plosser gives his economic
outlook (9).
·
Data
continues to flow on Thursday with initial and continuing claims, PPI, Empire
Manufacturing (8:30) and Philly Fed (10).
·
The
week's data concludes on Friday as CPI (8:30), industrial production and
capacity utilization (9:15), Michigan Sentiment (9:55) and Net Long Term TIC
Flows (16) cross the wires. Minny's Kocherlakota gives his "Goal-Based
Monetary Policy Report" (8:50) and St. Louis' Bullard discusses the economy
and monetary policy (13:10).
Weekly Analysis
Technical Updates
Briefing's Commentaries
Week in Review: S&P 500 Bouncing
Off Technical Levels
The stock market began the first full week of 2015 on a cautious note. The S&P 500 lost 1.8% while the Russell 2000 (-1.3%) outperformed. Stocks began sliding at the sound of the opening bell amid weakness in Europe that was brought on by renewed fears of a potential Greek exit from the eurozone. With the January 25 Greek snap elections fast approaching, voices out of Germany have tried to calm investors, but those calls have fallen on deaf ears so far. Over the weekend, German Chancellor Angela Merkel said that a Greek exit from the eurozone would be manageable, but the comments did not stop the euro from falling below the 1.1900 level against the dollar immediately after the foreign exchange market opened on Sunday evening. Interestingly, the dollar rallied against the euro, but surrendered almost 100 pips to the yen (119.60), suggesting a sense of caution was present among foreign exchange traders.
Equity indices ended the Tuesday session in the red with the Russell 2000 (-1.7%) pacing the retreat. Meanwhile, the S&P 500 lost 0.9% with eight sectors registering losses. The stock market held up relatively well through the first hour of action, but the return of some recent concerns pressured cyclical sectors and the broader market into negative territory. Specifically, the S&P 500 reversed from its session high after The Financial Times reported, citing Oxford Economics research, that Syriza party in Greece is on track to win enough votes that would translate into a mandate to push back against austerity policies imposed by the European Union. In addition to hitting U.S. stocks, the news knocked European markets off their highs and set a fire under U.S. Treasuries. The resulting safe-haven flows underpinned Treasuries, sending the benchmark 10-yr yield lower by seven basis points to 1.96% after marking a low just under the 1.89% level.
The major averages rebounded from their recent swoon on Wednesday with the S&P 500 (+1.2%) posting its first gain in six sessions. The benchmark index settled just behind the Nasdaq Composite (+1.3%), while the Dow Jones Industrial Average (+1.2%) and Russell 2000 (+1.2%) ended in-line with the S&P 500. The midweek advance occurred in two stages with the market climbing out of the gate amid upbeat action overseas. The S&P 500 notched its morning high 30 minutes after the opening bell, but returned to its opening level two hours after the start of the session. Equity indices then charged to new highs after Bloomberg reported that German officials are expected to show willingness to restructure Greek debt. The report said that a debt write-off is not being discussed, but repayment terms may be eased. Stocks caught a second wind following the Bloomberg report and spent the remainder of the session near their afternoon highs, all but ignoring the FOMC minutes from the December meeting. The lack of reaction was understandable, considering the document did not introduce anything ‘new' in particular.
The S&P 500 spiked 1.7% on Thursday, continuing its rebound that began on Wednesday when the index found support at its 100-day moving average (2005). The benchmark index surged past its 50-day moving average (2044) on Thursday and returned to unchanged for the year. Equity indices didn't waste any time after the prior day's rebound, extending higher in the futures market in reaction to evening comments made by Chicago Fed President, and more importantly, 2015 FOMC voting member Charles Evans. Presenting at the University of Chicago, Mr. Evans reiterated his belief that due to low inflation, the Fed should not rush to raise rates, adding for good measure that such move would be a "catastrophe." Interestingly, Fed insider Jon Hilsenrath of the Wall Street Journal wrote that the Fed could indeed raise rates soon if it is believed that low yields at the long end of the curve reflect an influx of capital into dollar-denominated assets, which could spark a surge in prices. Mr. Hilsenrath added that this was the view espoused by NY Fed President and this year's voting member William Dudley, who argued a similar situation presented itself in 2000s, leading to the housing bubble. The signs of an impending tug-of-war at the Fed over when to pull away the punchbowl did not stop the stock market from spiking out of the gate and adding to its advance in afternoon action. Meanwhile, Treasuries retreated, sending the 10-yr yield higher by six basis points to 2.01%.
Next Week In View
Jason's Commentaries
Market Call: FLAT to upside
Date: 24 Feb 2014
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