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Markets Stay in Rally Mode; Can S&P Index Break New Levels?

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April 13, 2016

(Wednesday Market Open)The markets rolled open in higher territory this morning, following strong sessions abroad and on the heels of Tuesday’s rally in the markets. But can it hold?

Tuesday’s rally was sparked by reports of a promise of an oil-output freeze by Saudi Arabia and Russia, two of the world’s largest oil producers. That underpinned a fresh peak on the closing price of crude for the year at $42.17, up 4.5%. It also put a wind under the broader markets: the Dow Jones Industrials (DJIA) logged its best day since March 11 while the technology-heavy Nasdaq (COMP) ratcheted higher too. But the bigger winner was the S&P 500 (SPX), which climbed 1% to anchor itself in positive territory on the year. Energy stocks also got a big boost, leading the SPX sectors with a 2.8% gain while the dollar and gold retreated.

Those hopes were dashed today when a Saudi prince told reporters not to pay attention to that rhetoric, according to news reports. Crude reacted in what might be considered a predictable manner, sliding 1.4% to below $41. The relationship between crude prices and the markets are again muddled: All three broader measures opened on the upside with the SPX headed toward breaking through the 2070 level.

Elsewhere, JPMorgan (JPM) Q1 results were a pleasant surprise to Wall Street because they not only beat expectations but Chief Executive Jamie Dimon offered an upbeat assessment on consumer-credit trends in prepared remarks. Profits dropped 6.7% as the largest U.S. bank by assets was bruised by tough conditions on Wall Street. But the results, at $1.35 a share, blew away analysts’ forecast of $1.26 a share. As a result, JPM shares jumped 3.1% early on.

Yes, data is rolling in again today and that’s curbing the markets’ enthusiasm. Headline numbers on retail sales were disappointing at a minus-0.3%. But stripping out autos, which were expected to be lower after an 18-month hot streak, and the results looked better at a 0.2% gain. On the other hand, U.S. wholesale prices were down 0.1% in March even with an uptick in gasoline prices.

On Tuesday, the Labor Department said import prices marked a 0.2% gain in March, following a 0.4% revised drop in February. While the increase, the first in nine months, was welcome news, it fell well short of analysts’ expectations of a 1% gain.

What’s a day in the markets without hawkish comments from the Federal Reserve members who report to a dovish leader? Three Fed leaders—Richmond Fed President Jeffrey Lacker, San Francisco Fed President John Williams and Philadelphia Fed President Patrick Harker—spoke around the country Tuesday in favor of putting the central bank back into the business of “continuing normalization,” as Harker called it. They all believe the U.S. economy is doing “quite well,” by Williams’s account. Said Harper, "The underlying trend in my view is unmistakable. This economy, despite all the headwinds we face ... we continue to move ahead." What does Yellen think again? 

SP500-gains-pressured

FIGURE 1: ON SOLID GROUND.

The S&P 500 (SPX), plotted midday Tuesday on the TD Ameritrade thinkorswim® platform, rallied 4.5% to give it solid footing in positive territory that it continued to enjoy early Wednesday. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Honey, the Kids are Fighting Again: As if the Fed didn’t already have sibling rivalry, along comes the New York Fed with a new report tracking U.S. gross-domestic-product movement that clashes with a regular GDP update that the Atlanta Fed has had in place since 2014, according to the Wall Street Journal. “Adding to the intrigue, the rival measures offer vastly diverging views of how the economy is doing,” WSJ reported. The New York’s FRBNY Staff Nowcast sees a lukewarm Q1 growth at 1.1%. That doesn’t mesh well with the 0.1% near-standstill the Atlanta bank’s GDPNow forecasts. WSJ notes that, “Since they push out an estimate before all of the inputs are finalized, the trackers warn that there is less accuracy at the beginning of the tracking period than the end.” Is that a potential caveat emptor?

Still Too Big to Fail: Federal regulators rejected the so-called “living wills” of five of the nation’s largest banks and called on them to make significant revisions, according to news reports. If changes to their plans to avert a possible bankruptcy that could result in a financial burden to taxpayers don’t meet federal standards by Oct. 1, they face potential regulatory sanctions

Good Trading,
JJ
@TDAJJKinahan

Economic Calendar

FIGURE 2: THIS WEEK'S ECONOMIC REPORT CALENDAR

Source: Briefing.com

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