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Will ECB’s Draghi Move Markets Again? Early Focus on His Remarks

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April 21, 2016

(Thursday Market Open) Oil and earnings continue to grab attention, but European Central Bank President Mario Draghi is expected to carry the day, at least in the early going.

The European Central Bank (ECB) left interest rates unchanged, but Draghi hosts a news conference this morning, and he’s moved the markets the last few times he’s talked. At one recent news conference, Draghi said he didn’t expect to cut interest rates again, and that helped put strength into the euro. Stock futures were flat overnight, in part because traders awaited Draghi’s comments. The ECB deposit rate remains at minus 0.4%.

We’re still in the heart of earnings season, and some of the companies reporting today include General Motors (GM), Travelers Companies Inc. (TRV), and Verizon Communications (VZ) before the open, and Alphabet (GOOG), Starbucks (SBUX), Microsoft (MSFT), and Visa (V) after the close. Friday brings closely watched earnings from General Electric (GE) and Caterpillar (CAT), so the market today will likely focus on ECB and on setting up for all the important earnings tomorrow.

Oil was stable early on after yesterday’s rally. Most commodities are up this morning due in part to the weaker dollar.

U.S. 10-year Treasury yield has moved steadily upward since last Friday, and recently was at around 1.86%, compared with Friday’s close of 1.76%. Current levels are the highest in more than three weeks. This is a natural move, as it’s typical for bonds to sell off and yields to correspondingly move higher amid stock market rallies.

There’s resistance in the S&P 500 Index (SPX) at 2125, but the big, big, big, resistance is at last year’s all-time high just below 2135.

 

S&P 500

FIGURE 1: HIGHEST SINCE JULY

The S&P 500 (SPX), plotted for the last nine months ended Wednesday on the TD Ameritrade thinkorswim® platform, is now back to levels last seen in July, with resistance seen at 2125. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Existing Home Sales Pop: After Tuesday’s disappointing housing starts data, investors got some better news Wednesday as existing home sales rose 5.1% in March, according to the National Association of Realtors (NAR). That put the annual rate at 5.33 million, slightly above expectations. Lawrence Yun, NAR chief economist, says home sales had a nice rebound in March following February's uncharacteristically large decline. "Closings came back in force last month as a greater number of buyers – mostly in the Northeast and Midwest – overcame depressed inventory levels and steady price growth to close on a home," he said in a press release. "Buyer demand remains sturdy in most areas this spring and the mid-priced market is doing quite well.” However, he added that sales were softer both at the very low and very high ends of the market because of supply limitations and affordability pressures.

How Does U.S. Stock Index Performance Compare? Since making its lows for the year at around 1810 on Feb. 11, the S&P 500 Index (SPX) is up approximately 16%. That’s pretty good, but how does it compare with foreign stock markets? If an investor had bet on the German DAX index at its mid-February lows, they would have done a little better, with gains of 18%. But investments at this year’s early lows in the major indices of British stocks (up 15%), Japanese stocks (up 13%) and Chinese stocks (up 13%), would have trailed the SPX. Turns out that if someone had the foresight back then to forget about stocks and invest in oil futures, they would have out-performed everyone, as the nearby U.S. crude futures contract is up nearly 70% from mid-February.

Apple Delays Earnings One Day to Honor “Coach”: Investors awaiting Apple’s (AAPL) earnings got some news late Wednesday when Apple said it’s postponing its earnings by one day, to Tuesday, April 26, so that the release won’t conflict with a memorial for Bill Campbell, who died earlier this week at age 75. Campbell, a former football coach and also a mentor to Apple co-founder Steve Jobs, was head of marketing at Apple in the early 1980s and was affectionately called “coach” even after his football days. Campbell proved instrumental in the decision to advertise the new Macintosh computer during Super Bowl XVIII in 1984, according to Walter Isaacson’s biography of Jobs. Though Jobs was a big advocate of the unconventional ad, which invoked George Orwell’s dystopian novel, “1984,” others at Apple weren’t so sure. The leadership decided to let Campbell figure out what to do. Campbell decided to throw the long bomb. “I think we ought to go for it,” he told his team, according to Isaacson’s book. The rest is history.

Good Trading,
JJ
@TDAJJKinahan

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