Stock Market Slightly Lower, Volatility Muted as Investors Eye Direction

U.S. equities futures were slightly lower Thursday morning as the market was a bit directionless, waiting for more news after yesterday’s mixed finish.

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(Thursday Market Open) U.S. equities futures were slightly lower Thursday morning as the market was a bit directionless, apparently waiting for more news after yesterday’s mixed finish.

Volatility appears muted today compared to where it has been in recent weeks, with VIX sitting near 15.6 early Thursday. That’s slightly up from this week’s lows, but still implies a quieter type of trade after all the choppiness of the last two months. 

This morning, the government reported that U.S. weekly jobless claims totaled 232,000. A consensus of economists provided by Briefing.com had expected initial claims to come in at 226,000.

On the trade front, Japan’s Nikkei average jumped to a seven-week high on apparent investor relief that the United States didn’t make new trade demands during a meeting between President Donald Trump and Japan’s prime minister.

In earnings early Thursday, Procter & Gamble (PG) reported a day early and narrowly beat Wall Street analysts’ expectations with earnings of $1 a share. The company also beat estimates for revenue.The earnings news came a few hours after PG said it would pay more than $4 billion for Merck & Co.’s (MRK) consumer health business. The earnings calendar is a little light on big companies the rest of this week, though General Electric (GE) and Honeywell (HON) both report tomorrow.

The big three U.S. indices were mixed on Wednesday, with the S&P 500 (SPX) up and Nasdaq (COMP) up slightly but the Dow Jones Industrial Average ($DJI) down a smidge. The $DJI slipped as IBM (IBM) shares tanked on disappointing profit margin news. Analyst opinions were mixed on the future of the company, which has an outsized influence on the $DJI compared with the SPX because of how the two indices weight companies.

Other tech news was more positive as Amazon.com (AMZN) and Best Buy Co. (BBY) said they are partnering to sell smart TVs that run on Amazon’s Fire TV operating system. Both companies’ shares rose on the news. The announcement marks another foray by the online retailer into brick and mortar stores to supplement its online presence.

The energy sector was the best performing of the S&P sectors Wednesday as crude oil prices surged more than 3% to top $68 a barrel on news that U.S. inventories dropped. It seems like the commodity is destined to test the $70 level. Historically, this is the level where airlines have started serious hedging in the past, and if that happens again we could potentially see more buying pressure on crude. Oil climbed above $69 a barrel early Thursday to hit its highest point in more than three years.

Meanwhile, bonds sold off on Wednesday in an apparent signal that investors had more risk appetite. The yield on the benchmark 10-year Treasury climbed to 2.89% early Thursday, and looks like it might test the psychologically important 2.9% area again. 

Energy outpacing the broader market.

FIGURE 1: STRENGTH IN OIL SERVICES.

After lagging the overall market in recent days, the energy sector (IXE) has picked up steam as crude oil raced to 3-year highs. Data source: S&P Dow Jones Indices. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

Housing in Focus: Next week is big for housing numbers. March existing home sales figures are scheduled for  Monday and new home sales for March along with the February S&P Case-Shiller Home Price Index on Tuesday. As for homebuilders, Pulte (PHM) is scheduled to report  Q1 results Tuesday, and DR Horton (DHI) is scheduled to report fiscal Q2 numbers on Thursday. The industry already has seen strong Q1 results from Lennar Corp. (LEN), and housing starts and building permits in March rose more than expected. These results, as well as those and the economic data from next week could provide clues for the industry going forward. After NVR (NVR) reports results this morning, Meritage Homes Corp. (MTH) releases its Q1 results April 25. We’ll have to wait until next month for some of the other homebuilders, as well as from home improvement companies The Home Depot (HD) and Lowe’s Companies (LOW), before we get a more complete snapshot of the housing market.

Consumer Expectations on Tap: This morning we get a peek at U.S. consumer expectations for March. This component of the Conference Board's Leading Economic Index, scheduled to come out at 10 a.m. ET, shows what consumers are expecting for business conditions. Given the power of the American consumer, it’s worth watching, especially now as tax reform has taken effect and as the Fed looks like it's in a more hawkish mood. If consumers think they’ll spend more, and that pans out, of course that’s great for the economy, but it also means inflation could rise. We’ve already seen a positive sign for consumer discretionary spending in 1Q with blockbuster Netflix (NFLX) results, so it will be interesting to see whether consumers are thinking they’ll spend more going forward.

Beige Book Highlights: Speaking of consumer spending, the Fed’s Beige Book released Wednesday showed that economic health rose in most regions on strength in non-auto retail sales and tourism. That came as economic activity continued to expand at a modest to moderate pace across all 12 of the Fed districts in March and early this month. Meanwhile widespread employment growth continued, and labor markets remained tight. Prices increased across all districts, including prices for steel, due in part to of the new tariff. Despite a generally positive economic outlook there was concern in the manufacturing, agriculture and transportation sectors about tariffs, whether newly imposed or proposed. With the overall optimism, it seems likely the Fed will likely stay on track with gradual rate hikes, but it’s worth keeping an eye on that tight labor market and whether trade issues really do become an economic headwind.

Good Trading,

JJ

@TDAJJKinahan

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Economic calendar 4-19-18

THIS WEEK'S ECONOMIC CALENDAR.

Source: Briefing.com

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