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Rebound Not Enough: Quarterly Win Streaks End at Nine For S&P 500, DJIA

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March 29, 2018

(Thursday Market Close) After plunging earlier this week in a tech-led sell-off that scotched chances of a 10th-straight quarterly rise, stocks charged back Thursday in a broad-based, impressive rally featuring those same tech names in starring roles.

When the closing bell finally rang on this turbulent week, month and quarter ahead of Friday’s holiday, the S&P 500 Index (SPX) found itself with a 1.4% rise on the day, but still down slightly for the quarter. The Dow Jones Industrial Average ($DJI) rose about 1.1% Thursday and fell around 2% in Q1, while Nasdaq (COMP) had the best day of the big three indices with a 1.6% rise. COMP ran up a better than  2% gain for the quarter.

It was the first quarter of losses for the SPX and $DJI since Q3 2015, ending a nine-quarter win streak. Still, even with the Q1 loss, the SPX is up about 37% from where it settled on Sept. 30, 2015, the last day of 2015’s Q3. Not a bad run.

The FAANG swoon temporarily ended Thursday, though it’s anyone’s guess whether this is a one-day wonder or something with more legs. Facebook (FB), which got beat up all week, put in a nearly 4.5% gain. Alphabet (GOOG), Amazon (AMZN), Apple (AAPL) and Netflix (NFLX) also had big days. In other tech action, Microsoft (MSFT) powered higher after the company announced a restructuring initiative.

It wasn’t just a tech story, though. Shares of Boeing (BA), another stock that got kicked around recently in part due to trade war fears, by itself accounted for around 100 points in gains for the $DJI. In general, some of the “momentum” stocks found buyers again Thursday, bringing a sense of deja vu that made it feel like January all over again, if only between the opening and closing bells.

If you’re a long-term investor looking out at the next quarter, you could take different views on whether Thursday’s rally was “meaningful” in more than a one-day sense. There’s certainly some positive developments that market bulls might hang their hats on going into Q2, including the fact that the S&P 500 (SPX) for the second time this week bounced significantly after testing technical support near its 200-day moving average. Also, volume was a bit better than one might have expected, considering it’s spring break for school kids and many people are taking time off. Often, people look at volume to see if there’s something behind a rally, and the higher the volume, the more credence people tend to give a market move.

Also, the U.S. dollar steadied against some other currencies, including the yen and the euro, perhaps a sign of continued investor faith in the power of the U.S. economy as data continue to look mostly positive. Crude oil rose, too, and finished Q1 up more than 7%. Strong demand for oil is another hint of economic health.

On the other hand, it’s possible some people might discount Thursday’s action, in part because it was the last day of the month and might have reflected what’s often called “window dressing,” when many fund managers sell losers and buy winners to shape up their portfolios before reporting results to investors. This can sometimes take a bit of credibility away from a market move, at least in the eyes of some on Wall Street.

There’s also the so-called “synthetic Friday” phenomenon that sometimes happens on a Thursday before a three-day weekend that starts on a Friday. This psychology can give the market an artificial flavor, and it’s possible by Monday some market participants might dismiss what happened. In addition, volatility dropped Thursday but remains elevated, so the choppiness probably isn’t going away.

Whether you’re trading several times a day or you’re a buy-and-hold investor, the weekend offers a chance to take a look at your portfolio and make sure you’re positioned the way you want to be after this volatile quarter. If the market weakness in Q1 sent your stock market exposure lower, maybe it’s time to consider getting back into a few names. Though the Cboe Volatility Index (VIX) fell Thursday (see figure 1 below), volatility is likely to be with us for a while, so make sure to get in where you’re comfortable and look for singles, not home runs.

Another thing to remember is that not all markets are closed Friday. Some fixed income and currency products will be trading, so give it a look and make sure nothing crazy is going on. Keep in mind, too, that with important religious holidays this Friday and over the weekend, there’s a chance of headline risk, meaning people who try to use the cover of religious events to sneak out some bad news. So don’t turn off your radar. Hopefully it will be quiet and people can enjoy their holidays.

Next week brings the jobs report a week from Friday, as well as more housing data. It will be a data- driven, news-driven week again. If you like how we’ve traded last two weeks, it’s possible things could be very much the same in coming sessions.

VIX softer on equity rally

FIGURE 1: FEAR EBBS GOING INTO THE WEEKEND.

The end-of-quarter bounce in the equity markets took a bit of fear out of the market, as evidenced by the Cboe Volatility Index (VIX). As of the close of the stock market Thursday, VIX was down about 13%. Data source: Cboe Global Markets. Chart source: The thinkorswim platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

Good Trading,
JJ
@TDAJJKinahan

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Economic Calendar

FIGURE 2: NEXT WEEK'S ECONOMIC CALENDAR.

Source: Briefing.com

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