(NOTE TO READERS: JJ Kinahan is traveling today, so the following is a guest Market Update column written by Scott Connor, Director of Trader Education at TD Ameritrade, managing Swim Lessons trader educational programming, which TD Ameritrade clients can access live beginning 10:30 a.m. CT each trading day from the Support/Chat function within the thinkorswim platform).
(Friday Market Open) The week may be almost over, but there’s still some data to comb through before people go home.
Friday brings another string of economic numbers, including February industrial production, February leading indicators, and the first read on March consumer sentiment from the University of Michigan. Arguably the biggest of these to watch is industrial production, which analysts expect to rise 0.2% in February following a 0.3% contraction in January.
The market seemed primed for a slightly higher open after a mixed performance from overseas markets. Today’s data-fest could help determine some of the direction once the numbers come in. Otherwise, things appear pretty quiet as an eventful week rolls toward its close.
That thud you heard Thursday was the health care sector, which dropped nearly 1% and appeared to drag on the S&P 500 Index (SPX). A lot of commentary focused on Biogen (BIIB), a high-profile biotech stock that slumped 4% after a downgrade. And biotechs seemed to pull down the health care sector as a whole, with the S&P Biotechnology Index falling more than 1%.
Still, even with Thursday factored in, biotechs have performed pretty well over the last three months, and certainly the extended slide that hit the sector in the second half of 2015 appears to be long over. Additionally, health care as a whole is up nearly 10% over the last three months, making it one of the leading sectors over that stretch. Perhaps some of the selling Thursday reflected profit taking.
Speaking of sectors, financials recovered a bit Thursday after falling Wednesday. The losses Wednesday may have been connected to what many saw as less hawkish than expected post-meeting remarks by the Fed, but some of the negative sentiment that dogged financials late Wednesday appeared to dissipate Thursday. Again, we’re talking about a sector that’s had a really nice run over the last three months (up more than 5%), so there are bound to be some negative days mixed in.
The dollar continues to lose ground vs. foreign currencies including the euro and yen. Wednesday’s Fed release, which kept rate targets pretty much unchanged, as well as the Dutch election results — in which a far-right politician suffered defeat — appeared to help the euro climb to five-week highs vs. the dollar, media reports said. The dollar continued to sink Friday morning.
As the dollar slipped, gold made big gains (see chart below), rising well above the technical support level of $1,200 an ounce to around $1,230 by Friday morning. Gold may have gotten a boost from the dollar’s weakness, and from less hawkish Fed talk. But it’s probably a good idea to keep an eye on gold and the dollar next week, when a bevvy of Fed speakers hit the rubber chicken circuit.
Crude oil continues to wobble around the $49 a barrel mark, above recent lows but not back to the long-term trading range it had forged between $50 and $55. A surprise drawdown in U.S. stockpiles this week appeared to support prices, but U.S. supplies remain the highest ever and rig counts have been climbing for weeks. Updated rig count data are due later today.
Don’t Let That GDP Fool You: Yesterday, we discussed lower estimates for Q1 gross domestic product, which the Atlanta Fed GDPNow tool currently has at just 0.9%. Fed Chair Janet Yellen was asked directly about the perceived irony of rates rising even as GDP looks anemic, saying the Fed sees other signs of growth. What might these be? Well, to recap, the last two monthly jobs reports have been strong, inflation is up solidly from a year ago, overall Q4 earnings beat analysts’ estimates, housing starts and job openings beat expectations, and the government upwardly revised January retail sales to a robust 0.6%. With the auto component factored out, retail sales rose 1.2% in January and another 0.2% in February, so it appears consumers are out there buying. Wages keep rising, as well.
Consumer Confidence Seen Up: Do the strong data listed above say anything about “animal spirits” among consumers? Today’s consumer sentiment data might shine some light. Last month’s University of Michigan sentiment figure fell a little from January to 96.3, but remains near the highest level since 2004. Not much change is expected for the early March reading, with analysts’ forecasting a preliminary March figure of 97, according to Briefing.com. The data are due at 10 a.m. ET.
In A “Rut”: Pardon the headline pun, but the Russell 2000 Index (RUT) of small stocks is living up to its ticker symbol lately, up around 1.5% year to date vs. around a 4% gain for the S&P 500 Index (SPX), which consists of bigger names. Why the discrepancy? Some analysts say small stocks are feeling more pressure from delays in the introduction of President Trump’s proposed tax and fiscal policy. That theory may have gotten a boost Thursday, as small stocks reached nearly 10-day highs after the release of the administration’s budget plans. But correlation isn’t necessarily causation.
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