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This week’s recap is sponsored by Born To Sell – “Earn extra income on stocks you own with our covered call screener and portfolio management software.”
A very busy week indeed!
Trump has basically turned into the new Ben Bernanke – whatever he whispers the market takes as face value as bullish and runs up. We saw that Wednesday after the address to Congress where there was a big spike the following day.
In what many saw as a rather reserved speech, the U.S. president said he would push for around $1 trillion in infrastructure spending, and promised “massive tax relief” for the middle class and tax cuts for corporations. Otherwise, the speech was lacking in firm details about his economic plans.
However, with averages SO extended over any moving average it was very difficult for bulls to build on that push up as we have the “rubber band effect” where indexes can only go so far from their trend.
Last week we showed that the S&P 500 had been so strong in February that is had been riding the 5 day moving average almost the entire month. Tuesday of this past week was the first close below the 5 day in nearly 4 weeks. Then Wednesday we had a spike back above. Another concept some technicians use is “Bollinger bands” which I included in the chart below in red. This is to represent the “rubber band effect” – once an index price detaches so far from even something so aggressive as the 5 day moving average it is very difficult to really build on that. So Wednesday you can see the S&P 500 hit the top bollinger band and then fell back. Just another fun feature for those who like other indicators.
Another major news story of the week was the IPO of Snap , the parent company of SnapChat – making another billionaire out there; one who dates Miranda Kerr. It’s a good life for a company that didn’t have a dollar of revenue until…2015. And had humble beginnings as a sexting app. Up 44% from the IPO price Thursday, and another 10%+ Friday.
Snap sold 200 million shares to raise $3.4 billion, making it the largest U.S. initial public offering since Alibaba Group Holding (BABA) offering in 2014. The IPO price commanded an initial market capitalization of $19.7 billion, though that valuation rises to roughly $24 billion on a fully diluted basis. Both figures are above Snap’s last reported private market valuation of $17.8 billion.
The app launched in 2011, but generated no revenue until 2015. While advertising efforts have ramped up since, with total revenue reaching $404.5 million in 2016, the company is paying far more to keep the service running and generating huge net losses. The app—developed by Stanford University students, two of whom are still executives at Snap—had 158 million daily active users as of December 2016, according to the company’s prospectus. Snap has big plans for the future, though. The first hardware offering from the company—Snapchat Spectacles, sunglasses that have a small camera installed and can upload video to the app—launched last year, and executives described Snap as “a camera company” in the run-up to the IPO. The app also has a payments feature called Snapcash.
Last, was Janet Yellen turning hawkish and signaling to the market that a March rate hike was on the table.
“At our meeting later this month, the Federal Open Market Committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the Federal funds rate would likely be appropriate,” Yellen said in a speech to The Executives’ Club of Chicago. The central bank’s policy-setting Federal Open Market Committee is set to convene at its two-day meeting starting March 14.
New York Fed head William Dudley was also in on the act Tuesday saying the case for a U.S. interest rate increase has become “a lot more compelling.”
Fed-funds futures are now pricing in an 82% chance of a rate hike, according to CME FedWatch Tool. That probability was less than 20% only a week ago.
For the month of February the S&P 500 gained 3.7% after a 1.8% rise in January. As we noted in last week’s recap, since 1945, there have been 27 years when the S&P has achieved gains in January and February. The stock index then finished up for the year (on a total-return basis) in every one those years.
In economic news, the ISM manufacturing index rose to 57.7 in February, its best level in more than two years. Any reading over 50 signals expansion. Meanwhile, construction spending declined 1% in January. ISM non manufacturing likewise hit 57.6; both ISM measures were very strong.
Here is a 5 day “intraday” chart of the S&P 500 via Jill Mislinski.
Fun eye candy but past performance is no indicator of future results – that said, March has been the best month in terms of absolute performance the past decade… and trails only April in percentage of times up at 70%.
Buffet says it’s not a bubble…
Billionaire investor Warren Buffett told CNBC on Monday U.S. stock prices are “on the cheap side” with interest rates at current levels. The chairman and CEO of Berkshire Hathaway said he put $20 billion into the market since just before the presidential election. “We are not in a bubble territory” in the stock market. ” If rates were to spike, however, then the stock market would be more expensive, he added.
Here are the top 10 passports the ultra rich might want; interestingly – they are all in Europe (Finland misspelled!). If you are curious, the U.S. came in at #35.
The “Nomad Passport Index” ranks passports based on visa-free travel (50% of ranking), taxation (30% of ranking), perception (10% of ranking), the ability to hold dual citizenship (10% of ranking) and overall freedom (10% of ranking). Each country’s value in each category is given the indicated weighting to achieve a country’s total score using the formula. “This index is designed to show the true value of citizenship in each country from the perspective of a high-achieving citizen who wants the freedom to minimize his or her tax obligations, diversify his or her wealth, and travel freely without judgment,” the report says.
Talk about saturation…
McDonald’s said nearly 75% of the population in its top five markets – U.S., France, the U.K., Germany and Canada – live within three miles of a McDonald’s.
Price war in the online broker trading community!
E-Trade said trade commissions will fall to $6.95 from $9.99 for all customers. The broker said it will introduce a lower pricing tier for its most active customers, that make more than 30 trades per quarter, of $4.95. Options charges will be 50 cents per contract. On Tuesday, Charles Schwab cut commissions for standard online equity and exchange-traded fund trades to $4.95, matching cuts made by Fidelity less than 24 hours earlier.
The week ahead…
The main data point will be the monthly employment data this Friday, but with the Federal Reserve essentially telling the market it is hiking in March it won’t be quite as notable as usual. We have the Federal Reserve meeting mid month, and earnings seasons doesn’t begin until early April so I guess it’s mostly about Trump between now and then!
Short term: Broken record alert – with the 2 major indexes the only issue is how extended things are. These are 2 very steep inclines.
The Russell 2000 YET AGAIN did not really follow the major indexes up in a significant way- this has become a longer term issue now.
The NYSE McClellan Oscillator fell BELOW zero – so as we say every time this happens while the indexes zoom up, it can be an early warning signal. Sometimes it is a false positive but something to watch if there is not a recovery soon.
Long term: Here are 5 year charts on the major indexes; again nothing negative here other than things are extended… in fact the NASDAQ has now broken ABOVE the upper part of our channel on a weekly basis! That is the third week in a row this has happened.
Charts of interest:
Monday, shares of Sothebys (BID) surged 16% after the auction house posted earnings that beat estimates.
Also Monday, La Jolla Pharmaceutical (LJPC) soared 77%, after the drugmaker announced positive results from a phase 3 trial of its hypotension treatment.
The company said LJPC-501 showed a “highly statistically significant” target blood pressure response, the study’s primary efficacy endpoint, and a trend toward longer survival was also observed.
Tuesday, Target (TGT) plunged 12% following the retailer’s gloomy outlook.
Wednesday, Lowe’s (LOW) finished up 9.5% after the home-improvement retailer’s quarterly results topped Wall Street estimates.
Also Wednesday, Weight Watchers (WTW) finished 27% higher after the weight loss company said its profit more than doubled in 2016.
Thursday, Monster Beverage (MNST) jumped 13% after the energy-drink maker posted higher earnings and announced a new $500 million stock repurchase plan late Wednesday.
Have a great week and we’ll see you back here Sunday!