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Can Rally Continue? Street Off a Bit After Tuesday’s Data-Fueled Climb

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March 2, 2016

(Wednesday Pre-Market) Stocks were flat to slightly lower early Wednesday, one day after strong U.S. economic data helped fuel the biggest rally since January. The slight weakness on Wall Street came despite rallies overnight in Europe and Asia, where investors built on the big U.S. gains.

Tuesday’s rally to seven-week highs, which marked the best start to a month in three years, was fueled in part by bullish economic news, with measures of U.S. manufacturing, auto sales, and construction spending all rising. A surge in oil prices to their highest levels since early January also helped put a charge into equities.

However, it was a different story early Wednesday, with oil weighing on the market after the American Petroleum Institute (API) reported a 9.9 million barrel increase in U.S. stocks, well above the 3.6 million barrel consensus. The front-month U.S. oil contract was recently down 47 cents at $33.93, and Brent futures fell below a technical support level at $37. At 10:30 a.m. ET, the U.S. Energy Information Administration (EIA) releases its weekly oil inventory numbers. Though the glut of oil hasn’t disappeared, there’s a sense among some market watchers that it may be drained a bit more quickly than previously expected.

In Fed news, John Williams, president of the San Francisco Federal Reserve, is scheduled to speak at 10 a.m. ET Wednesday. Williams gave a bullish assessment of the U.S. economy in an interview Wednesday with the Financial Times.

U.S. Treasury yields recently climbed above 1.86%, their highest level in nearly a month. Gold prices, which had been surging, leveled off a little early Wednesday, with front-month futures recently at $1,230, down from recent highs above $1,240.

Investors received some more data to chew on early Wednesday, as ADP reported private-sector job growth of 214,000 in February, above expectations for 185,000. The U.S. monthly non-farm payroll report looms Friday, and the consensus is for job gains of 190,000, with unemployment unchanged at 4.9%, according to Briefing.com. Going into the report, S&P 500 index futures have support at the 1950 level, and market bulls are watching to see if the index can stay above that support ahead of the data.

S&P 500

FIGURE 1: CAN MARKET BUILD ON TUESDAY’S SHARP RALLY?

The S&P 500 (SPX), plotted here through Tuesday on TD Ameritrade’s thinkorswim® platform, rallied sharply Tuesday to post seven-week highs well above what had been 1950 resistance. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Strong Data Propels Market: Separate data releases Tuesday helped propel the rally. The Institute for Supply Management (ISM) said its manufacturing index in February rose to 49.5 last month from 48.2 in January. That was still below the 50 figure that would indicate a manufacturing expansion, but above Street consensus, and it gave the market a boost. And U.S. auto sales zoomed to a seasonally adjusted annual rate of 17.54 million, the strongest reading for the month of February since 2000. Some analysts pointed out, however, that the strong auto sales were boosted by incentives. Even so, shares of auto makers Ford (F) and General Motors (GM) rose 4.6% and 1.9%, respectively. Construction spending also rose, the U.S. Commerce Department reported.

Battered Banks Bounce Back: Tuesday’s rally marked the best one-day gains for the Dow Jones Industrial Average (DJIA) and the SPX since January, and beaten-down financial and technology shares led the rally, rising 3.5% and 3.1%, respectively, in the SPX. Rising interest rates helped financial stocks, and the question is whether that will continue. Strong financial sector performance can play a part in major market rallies. Leaders on the S&P 500 Tuesday included financial companies like Citigroup (C), which rose 6.2%, Prudential (PRU), up 6.4%, and tech companies Seagate Technology PLC (STX), up nearly 6%, and Qorvo (QRVO), up 5%. 

Apple Polishing: Apple (AAPL) climbed about 4% Thursday, moving back above $100 for the first time since late January. The stock is now up about 7% from its lowest close of the year, but remains down about 5% since the start of 2016 and sharply down from highs above $130 posted last July. 

More Earnings, Beige Book Ahead: Costco (COST) reports after Wednesday’s close, giving investors another chance to see if recent strong wage growth translated into more consumer spending. Investors typically comb Costco’s second-quarter results to see how the company did during the U.S. holiday season. Also later Wednesday, the Fed is scheduled to release its Beige Book on regional U.S. economies.

Good Trading,
JJ
@TDAJJKinahan

Economic report calendar

FIGURE 2: THIS WEEK'S ECONOMIC REPORT CALENDAR.

Source: Briefing.com

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