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Markets Look to Mark More Records as Week, Month and Quarter Closes

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March 31, 2017

(Friday Market Open) Five months of gains. That’s the track record the Nasdaq Composite (COMP) logged yesterday as it registered another all-time high, its first since March 1. Will it top that today? Early indications point to modestly lower openings for all three major benchmarks as today marks the end of the week, the month and the quarter.

A bevy of economic reports on the agenda this morning might impact which direction the markets finally settle as they navigate what has been a rocky road for certain equities in recent trading sessions. Still, both the COMP and the S&P 500 (SPX) appears to be set to chart their fifth best straight months and the best week in six. Diving deeper, COMP is on track to end its best quarter since Q4 of 2013 while SPX might do the same since 4Q 2015.

Not so much for the Dow Jones Industrials ($DJI), which has struggled in recent sessions and might end the month marginally lower dependent on how the day shakes out. At the start of trading, it was 84 points off breakeven for the month.

Yesterday’s advance looked like it was fueled by the three-day rally in crude oil prices and that better-than-expected gross domestic product (GDP) number for the quarter. The energy sector also got a boost from an 8% jump in shares of ConocoPhillips (COP) after the oil giant agreed to sell its interest in an oil sands joint venture to Cenevous Energy (CVE). ExxonMobil (XOM) shares also contributed with its 2% rise after announcing that it had struck oil again on the Snoek well offshore Guyana.

The S&P 500’s financial sector (XLF) advanced 1.2% yesterday, too, as financial institutions appeared to gain ground after the government offered up that better-than-expected final economic report on GDP for Q4. GDP expanded at a 2.1% annualized pace, ahead of the 1.9% it reported earlier, and that seemed to suit some investors well.

What’s more, traders saw the U.S. oil benchmark, the West Texas Intermediate (/CLK7), breach the psychological $50 level for the first time in more than three weeks. Apparently there’s growing speculation that the Organization of Petroleum Exporting Countries (OPEC) might agree to extend its pact to curtail oil production beyond its June deadline.  

Though we heard this week from the U.S. Energy Information Administration that domestic-crude supplies rose to another record level, there were also larger-than-expected drops in gasoline and distillate supplies, and refiners reported that they were processing oil at a higher rate. What makes this interesting, too, is that oil and gasoline stocks typically retreat in the spring when the traditional driving season begins. Some selling pressure in the early going might be profit-taking.

All this appears to be driving momentum in the markets, but let’s not forget that this is the last day of the quarter. As noted all week, there could be a lot of “window dressing” at work here as fund managers typically attempt to square their positions in the final days of a quarter.


S&P 500

FIGURE 1: CLIMBING BACK.

The S&P 500 financial sector (XLF), tracked here through Thursday on the TD Ameritrade thinkorswim® platform, after crude oil broke above the $50 range, a key resistance, in recent weeks. Source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Another Measure of Consumer Confidence: Margin debt, which tends to rise and fall with the broader market benchmarks, hit another record high in February at $528.2 billion, according to the most recent data put out by the New York Stock Exchange. Margin debt is the amount investors borrow against their brokerage accounts—usually to purchase more stocks and bonds—because they typically feel bullish about their investments and have reduced fear of risk.

February’s record comes on top of a January record at $513.3 billion. Before then, a margin debt high was last recorded in the spring of 2015, at $505 billion.

And the Federal Reserve Marches On: There’s been lots of chatter lately about how many interest-rate hikes the Federal Reserve might push yet this year and that might continue today with more Fed members at the dais.

While Fed Chair Janet Yellen indicated earlier this month that at least two more upticks were on the horizon for this year, at least one other Fed member said not to be surprised if three step ups happened by the end of the year. San Francisco Fed President John Williams said this week that he’s looking to two more rate rises this year, but added this: “Given my forecast, along with upside risks, I would not rule out more than three increases total for this year.”

New York Fed President William Dudley also noted this week that the low-interest rate party isn’t over yet. “I don’t think we’re removing the punch bowl yet,” he said at a speech yesterday. “We’re just adding a bit more fruit juice,” noting that the federal funds rate is “still unusually low.”

Meanwhile, the CME FedWatch tool, which is based on Fed Funds futures contracts, doesn’t see a more than 50% change of another rate increase before June.

Look Ma, No Hands: It appears that Millennials and Gen Z’ers are headed to the technology highway to be entertained, according to Autotrader’s Car Tech Impact Study. In its most recent research, Autotrader and Kelley Blue Book found that telematics, cell-phone integration and advanced infotainment “will be more important than ever to car shoppers of the future.”

Specifically Millennials and Gen Z alike say they will prioritize technology in their future automotive purchase decisions. But we’re not talking about object recognition or brake warnings.

These young people are looking for technology that will connect with, yes, their smartphones. Some 71% of Millennials want their cars to sync with all other technology in their life; 63% of Gen Z said they would expect a vehicle’s technology to do all the same things a smartphone can do; and 59% of Millennials would switch vehicle brands to get the technology they want, the report says. So who’s driving the car with all those distractions?

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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