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Geopolitics Still Center Stage as Congress Goes on Recess and Earnings Loom

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April 11, 2017

(Tuesday Market Open) The market is on the cusp of earnings season, but geopolitics continues to be front and center. After mixed action overseas, stock futures pointed to a possible lower open Tuesday.

Concerns about Syria and North Korea could keep investors on their toes before earnings really start to hit on Thursday with three big banks reporting. The French election on April 23 is also getting closer. Meanwhile, so-called “safe haven” investments like gold and bonds continue to trade near recent highs, and volatility is up. VIX — a popular measure of market volatility —climbed above 14 early Tuesday, from below 12 earlier this month.

Crude oil prices cooled off a little early Tuesday, but crude is up sharply from last month’s lows and has closed higher five days in a row. Oil had been a bit of a headwind for the market when it was down last month, but now could be acting as a bit of a tailwind.

Crude gave energy shares a boost Monday, with that sector leading the market but still down pretty sharply year to date. Real estate was the other big positive mover on Monday, and that sector has been on a bit of a roll lately, possibly due to relative flatness in mortgage rates and strong housing data. Mortgage rates remain up pretty substantially year over year, but have fallen from highs posted in mid-March.

Overall, Monday saw a nice little rally in light-volume trading. This is a holiday-shortened week with the markets closed Friday, so that could be affecting volume. Also, U.S. fiscal policy, which had been the table setter a lot of the time over the last month, may retreat a little now with Congress on a two-week recess. The low volume could indicate that people are waiting for earnings and for Congress to get back before jumping into the market.

Fed Chair Janet Yellen spoke Monday afternoon, but her comments didn’t sound too different from what investors have been hearing and the market didn’t show much impact. Yellen said the economy is “pretty healthy” and growing moderately, according to media reports. The Fed plans to keep increasing rates until they return to more normal levels, Yellen added.

Energy Sector

FIGURE 1: ENERGY SECTOR STILL LAGS CRUDE

The S&P 500 (SPX) energy sector, tracked here through Monday on the thinkorswim® platform from TD Ameritrade, is up from last month’s lows but still hasn’t really been keeping pace with the fast-rising price of crude oil (purple line).  Data sources: Standard & Poor’s, CME. For illustrative purposes only. Past performance does not guarantee future results.    

Tracking Job Openings: After last Friday’s somewhat disappointing March jobs data, today’s Job Openings and Labor Turnover Survey (JOLTS) report for February could get a bit more attention than normal. The report, which comes out at 10 a.m. ET, has some big shoes to step into, because the January JOLTS came in higher than expected at 5.626 million. Another data point to watch is the so-called “quit” rate, which rose to 2.2% in January. A higher quit rate often points toward a stronger jobs market, showing that employees feel they have more options if they leave their current position. In the wake of the March jobs report, new hires are another number worth watching in JOLTS. That indicator reached 5.4 million in January, up from 5.1 million a year earlier.

Another Record for IMX: Though the markets have wobbled slightly over the last month, retail traders seem to remain optimistic. Retail traders tracked by TD Ameritrade were net buyers of stocks in March, according to the Investor Movement Index®, or the IMXSM. The March reading hit a record high of 6.22, up 1.13% from 6.15 in February. This is the third consecutive month the index increased as TD Ameritrade clients remained net buyers. Some of the bigger stocks attracting retail buyers, according to IMX, included Target, Berkshire Hathaway (BRK/B) and Bank of America (BAC). The takeaway: Retail investors seem to still want to stay engaged with the market.

Delayed Taxes? Though your first thought when it comes to taxes might be next Tuesday’s personal income tax filing date, the market continues to focus on broader tax policy. The latest word came Monday when the Associated Press reported that the Trump administration is reconsidering its tax plan, which could lead to delays from the previous promise of an August unveiling. Some of the recent pullback in stocks from record highs a month ago might reflect impatience with the speed of tax policy so far, and many investors would probably like to see more detail. The AP said the White House is trying to take a bigger leadership role in crafting a tax plan than it did with the unsuccessful health care reform effort, when it let Congress do more of the footwork. It also looks like the White House may be taking a more bipartisan approach, the AP said.

Good Trading,
JJ
@TDAJJKinahan

Economic Calendar

FIGURE 2: THIS WEEK'S ECONOMIC CALENDAR.

Source: Briefing.com

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