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Market Update

Durable-Goods Downer Could Kill Mega-Deal Buzz

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March 25, 2015

Is there some secret holiday at work in the stock and currency markets that I’m unaware of? Volume is non-existent, with only deal buzz potentially stirring the Street from this spring slumber. Conditions can only be characterized as rail-thin, holiday-like volumes that leave major stock averages teetering just below record highs. In fact, the bond market has rallied for three days in a row, pinning down market interest rates even as the stock market had started to wrap its arms around gradually higher Federal Reserve rates beginning later this year. Gold has quietly rallied to two-week highs and is knocking on $1200 an ounce again. There’s a real lack of direction that is surely turning some stock bulls into nail-biters.

FIGURE 1: CONGESTION AT THE TOP.

The S&P 500 (SPX) has churned in low-volume trading on either side of the closely watched 2100 line. Data source: Standard & Poor’s. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results. 

Next Leg for the Dollar? The U.S. dollar, trading earlier this month at a 12-year high against the euro, has been locked in a tight range in recent sessions and that inaction appears to be holding the stock market in limbo. The dollar tipped lower then stabilized Wednesday when the euro firmed on data showing German business confidence rose in March for the fifth straight month, hitting its highest level since July 2014. Oil prices were also suspended in paper-thin pricing action ahead of crude-stockpile data from the U.S. Energy Information Administration due later. In a separate report, the American Petroleum Institute said its data for last week showed a 4.8-million-barrel gain in crude-oil supplies.

Ketchup On Your Mac N Cheese? Deal hype could boost the broader market. Kraft Foods Group (KFT) shot higher in early trading Wednesday after the company and H.J. Heinz Co. have agreed to form what will be the third-largest U.S. and fifth-largest food and beverage company in the world. The Wall Street Journal puts the deal at over $40 billion. Most analysts see the tie-up, backed by Warren Buffett’s Berkshire Hathaway (BRK.B, BRK.A) and a Brazilian private-equity firm, as a defensive move to shore up a market model under fire from changing tastes away from packaged, processed food. The combined company, which will be called The Kraft Heinz Co., will have revenue of $28 billion, the companies said. This wasn’t the only deal news to hit. Shares of Kofax (KFX) were up over 40% in early Wednesday action after the software company agreed to be acquired by Lexmark International (LXK) late Tuesday.

Durable Goods: Weak All Around. Orders for long-lasting U.S. goods fell in February for the third time in four months, a report that could have mixed implications for stock trading because its weak tone is longer-term negative but could also slow Federal Reserve interest-rate hikes. Durable-goods orders declined by a seasonally adjusted 1.4% last month, government data showed. Weakness in the volatile aircraft category was partly the culprit. But … even omitting the volatile transportation sector, orders still fell by 0.4% and were negative for the fifth month in a row. Orders for core capital goods, which can be a proxy for business investment, slumped 1.4% in February and fell for the sixth straight month.

Good trading,
JJ
@TDAJJKinahan

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