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Keeping Things In Perspective: Glass Half-Full Scenarios Not Hard To Find

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March 28, 2017

(Tuesday Market Open) An eight-day losing streak for the Dow Jones Industrial Average ($DJI) doesn’t necessarily mean the sky is falling, though sometimes there’s a tendency to think that way.

For those interested in a “glass half full” scenario, check the Nasdaq (COMP), which has been up seven of the last nine sessions. Neither the DJIA nor the Nasdaq have made big moves during this stretch, but the Nasdaq’s slight rally does provide a bit of contrast with all the talk on Wall Street about the weak DJIA. It also might signal a shift of assets toward some of the info tech and biotech stocks that dominate Nasdaq. Biotech stocks, for instance, had a big day yesterday.

And though the DJIA and S&P 500 (SPX) both finished lower yesterday, they did come back very strong in the last part of the session, and the financial sector pared some of its losses as bonds saw some weakness.

The lesson seems to be, keep things in perspective. There are some concerns coming from different areas, and the nature of the market is to look for possible sky-falling scenarios. But it’s important to be “slow to roll,” as the saying goes.

Markets looked mixed early Tuesday, with few major catalysts in sight. Volatility, which spiked after the health care bill got pulled, is now back down a bit as measured by VIX futures, but remains elevated compared to where it was in January and February. VIX broke its 200-day moving average, so that bears watching. A rise in VIX can sometimes signal worries about possible bumps in the road ahead.

The economic calendar today includes international trade in goods for February, the S&P Corelogic Case-Shiller Home Price Index for January, and the consumer confidence index for March (see below). European and Asian markets were mixed overnight, and crude oil prices have bounced back to above $48 a barrel.

Technical support for the SPX remains near 2330.

DJIA

FIGURE 1: WILL EIGHT BE ENOUGH?

The Dow Jones Industrial Average ($DJI) tracked here for the last 10 sessions through Monday on the TD Ameritrade thinkorswim® platform, has fallen eight sessions in a row, the longest such streak for the index since 2011. Source: Dow Jones & Co. For illustrative purposes only. Past performance does not guarantee future results.

Measure of Confidence: Later this morning investors will get a look at the government’s reading on March consumer confidence, which in February reached its highest level since July 2001. The March number is expected to fall, but only slightly, according to Wall Street analysts’ consensus as reported by Briefing.com. Consensus now is for 113.3, down from 114.8 in February. When consumer confidence is up, it tends to mean consumers feel better about the economy and expect more expansion, and could signal their increased willingness to buy big-ticket items like cars and major household appliances.

Health Care Aftermath: Last Friday’s decision by Congress and the president to cancel the vote on health care legislation arguably gave health care stocks a boost on Monday. The Nasdaq Biotechnology Index rose more than 1%. Why would health stocks benefit from the bill being pulled? Perhaps because at least for now, there’s less uncertainty surrounding the sector, and with diminished focus on major changes to health care, the political leadership may also be less inclined to make any changes at all. Biotechs, for instance, came under pressure after the election as then President-elect Trump called for cheaper drug prices. While the president could once again make this an issue, perhaps it’s lower on the radar now that Trump and Congress say they want to focus on tax policy rather than health care. Health care is also traditionally a more defensive sector, and sometimes when there’s widespread market weakness, investors look for lower-risk places to put their money.

More “Fed-Speak” On the Way: After dominating the scene with speeches nearly every day last week, Fed speakers line up to deliver more in the coming days. This week, 11 speeches are scheduled to take place from nine of the Federal Reserve's Open Market Committee's 12 members. The highlight could be a keynote speech from Fed Chair Janet Yellen to a conference in Washington, D.C., on Thursday morning. Maybe all this Fed talk will liven things up for a market that doesn’t have a lot on its plate. The health care vote that never happened is over, and the March Fed meeting seems like ancient history. Jobs data don’t arrive until next week, and earnings season starts in a couple weeks. So for anyone not on spring break, the Fed speakers may provide a diversion. Chicago Fed President Charles Evans got things started Monday, saying inflation looks "well on its way" to reaching U.S. economic objectives, CNBC reported.

Good Trading,
JJ
@TDAJJKinahan

Economic Calendar.

FIGURE 2: THIS WEEK'S ECONOMIC CALENDAR.

Source: Briefing.com

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JJ Kinahan

JJ began his career in 1985 as a Chicago Board Options Exchange...

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