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Market Update

After a Five-Week Romp to 2016 Highs, What’s Next For Equities?

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March 21, 2016

(Monday Pre-Market) Five straight weeks of gains. It’s been quite a run.

Few probably would have believed back in mid-February that such a surge was coming. At that time, U.S. equity indices had fallen to their lowest levels since 2014, interest rates were down significantly, and oil had slipped to 12-year lows. There was gloom in the air, and U.S. Fed Chair Janet Yellen said the Fed was “taking a look at” negative interest rates as a possibility to help spur economic growth should the economy become much worse.

Since then, we’ve seen a major recovery in oil, dovish central bank policy around the world, and signs of an improving U.S. economy all combine to help turn the stock market completely around.

The S&P 500 (SPX) index traded 13% above its 2016 lows at times during Friday’s session and moved above even for the year. It’s been a complete re-set, as if the first two months of 2016 never happened. The question is, can U.S. equity indices continue posting new 2016 highs in the coming week? They’ll only have four days to do so, with markets closed Friday in observance of Good Friday.

The rejuvenated oil market remains a prime factor helping to underpin equities, as concerns about recession began to fade once oil turned around from the 12-year lows it posted in January and February. Late last week, U.S. oil futures climbed above $40 for the first time since early December, supported in part by the weaker U.S. dollar. Actually, most of the commodity markets rallied last week, although gold took a bit of a stumble on Friday. However, the dollar did turn a little bit higher against the euro and the yen by midday Friday, so it’s worth monitoring to see if that continues in the coming week.

From a data standpoint, there’s not going to be much for investors to chew on during the short week ahead, but February existing home sales and February new home sales, due at 10 a.m. ET Monday and at 10 a.m. ET Wednesday, respectively, might provide us with a better sense of the U.S. economy, especially as it relates to big-ticket purchases. Last month, we saw January existing home sales rise unexpectedly to their highest level since July, but January new home sales fell rather sharply.

Earnings season doesn’t kick off until next month, but a number of smaller companies report this coming week. When earnings start rolling in from major firms in April, it will be interesting to see if some of the stronger economic data reported over the last few weeks starts to be reflected in companies’ top- and bottom lines. We already saw FedEx (FDX), the shipping firm, report better than expected results last week, and that contributed to the rally in equities, especially in the transport sector.

S&P 500

FIGURE 1: SPX POSTS GAINS FOR 2016.

The S&P 500 (SPX), plotted here through midday Friday on the TD Ameritrade thinkorswim® platform, was scoring slight gains for the year. Technical resistance is at the 2056 level. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Consumer Sentiment Below Expectations: Preliminary March consumer sentiment came in at 90, down from 91.7 in February and a little below consensus expectations, the University of Michigan reported Friday. “Consumer confidence eased in early March due to increased concerns about prospects for the economy as well as the expectation that gas prices would inch upward during the year ahead,” said Dr. Richard Curtin, the survey’s chief economist. “While consumers do not anticipate a recession, they no longer expect the economy to outperform the 2.4% rate of economic growth recorded in the past two years.”

Fed Speakers Opine: Early Friday, we heard from Federal Reserve Bank of New York President William Dudley and Boston Fed President Eric Rosengren, neither of whom discussed future Fed interest rate policy in their prepared remarks. The Fed speeches came after a quiet period leading up to last week’s policy meeting, and investors are likely to continue watching what Fed speakers say leading up to next month’s meeting April 26-27.

Good Trading,
JJ
@TDAJJKinahan

Economic Report Calendar

FIGURE 2: THIS WEEK'S ECONOMIC REPORT CALENDAR.

Source: Briefing.com

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