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Stocks Sluggish, Volatility Low After NASDAQ 5K

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March 3, 2015

Plenty of high-water marks of note to kick off the week, and yet, a pretty sluggish trade in the early going on Tuesday as participants assess life at the top. For starters, Monday marked another record close for the S&P 500 (SPX) and the Dow Jones Industrial Average (DJIA), while the tech-studded NASDAQ Composite (COMP) cleared 5,000. In fact, COMP is only 0.8% short of its record close of 5,048.62 hit on March 10, 2000. The biggest driver on Monday came from semiconductor stocks, with a leading index from the category, the PHLX Semiconductor Index (SOX), scoring levels not seen in the past decade (see figure 1).

PHLX Semiconductor Index (SOX) hit 10-year highs

FIGURE 1: SOX IN LEAD. The PHLX Semiconductor Index (SOX) made new best-in-a-decade highs on Monday, helping to lead technology shares and the broader stock market higher. Data source: Standard & Poor’s. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

 

Broad-Market Indicators. The CBOE Volatility Index (VIX) continued to move lower, trading sub-14 and nearing a test of its lowest level since early December. At these persistent low levels, market complacency worries start to bubble up. On your toes, troops. As for other broad-market signals, the government bond market took it on the chin to start the week, sending yields (aka market interest rates) up considerably as the market itself looks to force rates higher ahead of any potential Federal Reserve action. All told, it’s another potential short-term bullish sign for stocks, but an indicator worth watching because should a rise in market rates come too far, too fast, it could spook investors in rate-sensitive stock sectors.

New Car Smell. With no top-tier data economic releases on tap Tuesday, monthly auto-sales figures may get plenty of attention. This is a potentially telling economic indicator each month, anyway.  Economists polled by MarketWatch expect total sales to have climbed to 16.7 million in February, up from 16.6 million in January. Industry data tells us the average age of American cars on the road today is getting up there. So are drivers trying to squeeze a few more miles out of these heaps of metal or are they ready to take the plunge, especially now that several months of improving jobs data has strung together. Stay tuned, shares of Toyota (TM), General Motors (GM) and Ford Motor (F) traded largely unchanged in early market action.

Healthy Sign From Battered Best Buy? The electronics mart (BBY) unveiled plans Tuesday to buy back shares for the first time since 2012 and announced a 21% boost to its quarterly dividend and a special dividend. All signs that the board and management are feeling better. But other details in a pretty good quarterly earnings report could still leave investors worried about longer-term profitability. BBY said it had a good holiday season thanks to in-home theater sales (can we say big-ticket spending?) and mobile phones, but not so jolly a season to wipe out its January warning. At that time, the company said weak demand and declining prices will weigh on sales for the first half of the year and profitability will suffer during the period as it plans to spend heavily on store improvements. All this as it continues to try to keep up with Amazon.com (AMZN) and others.

Good trading,
JJ
@TDAJJKinahan

NC
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