Tuesday’s long overdue >1% selloff in the S&P 500 broke a very long and rare streak in the S&P 500. The S&P 500’s streak without a 1% down day was the longest since May 18, 1995! A marginal close lower Monday was followed by a 1.2% drop Tuesday (the NASDAQ fell 1.8% that day).
“I think that investors are kind of starting to discount the likelihood of the immediacy of [President Donald Trump’s] policies and the enthusiasm has come off the boil as a lot of his policies got mired in the legislative process,” said Jack Ablin, chief investment officer at BMO Private Bank. “Investors are not throwing in the towel but they are resetting their expectations.”
According to Bespoke, there have been only 11 instances since 1928 where the S&P 500 went over 100 days without a 1% loss. If you believe history will repeat from a very small sample size, things still will be bullish from here.
On average during the week, month and three months following the first decline during those periods, the broad-market S&P 500 tends to end higher. For the week, the average gain is 0.65%, advancing 8 out of 11 times. The average return after a month is 2.34%, with returns positive in 9 out those 11 occasions. After three months, average returns are about 2.44%, boasting gains in 8 out of those 11 periods.
The defeat of “repeal and replace” healthcare had some doubting whether the corporate tax reform – seen as one of the major legs of this market’s rise – may be at some risk down the road.
“The trading has nothing to do with the health-care aspects of the bill, and everything to do with what it means for tax reform, infrastructure spending, the general ability of these guys to get things done. A lot of the rally has been based on the expectation that these things will get done. If you bring that into question, a lot more risk enters the market,” said Ian Winer, director of equity sales trading at Wedbush Securities.
“At a time when the S&P 500 is trading above its fair value if you consider a forecast of $130 earnings per share on a 17-times multiple, Wall Street would really like to be reassured about the tax reforms,” said Kim Caughey Forrest, senior analyst and portfolio manager at Fort Pitt Capital Group.
Aside from some other negative issues that we have been outlining the past few weeks, we saw the Dow Transports break below early 2017 highs late this week.
On the economic front, Tuesday the government said existing home sales gained 5.4% year over year (but were down from January) as inventory tightened.
Inventory was 6.4% lower than in February 2016. Meanwhile, the median home price rose 7.7% compared with a year ago to $228,400. At the current pace of sales, it would take 3.8 months to exhaust available homes for sale, the lowest in any February back to 1999. First-time buyers, who represent fresh demand in the market, made up 32% of all buyers, still well below the 40% share they’ve historically represented.
Thursday saw new home sales rise to a 7 month high.
New-home sales ran at a seasonally adjusted annual rate of 592,000, the Commerce Department said Thursday. That was 6.1% higher than in January and 12.8% above last February’s level. February’s median sales price was $296,200, down 3.9% for the month and 4.9% compared with a year ago. Lower prices are likely helping boost sales, as is unseasonably warm weather: last month was one of the warmest Februarys on record.
Durable goods rose 1.7%.
Fed watch: Monday, Chicago Federal Reserve president Charles Evans said that he expected the U.S. economy grow at a 2.25% pace this year. He also suggested that if the economy continues to grow as expected and inflation flares up, he would support four rate hikes this year.
No 5 day “intraday” chart of the S&P 500 via Jill Mislinksi was posted this week.
Important but depressing news for the richest country on earth- middle aged white Americans without college education are seeing lifespans shrink.
In 2015, a pair of economists received widespread attention for their study showing that since the late 1990s the death rate has been rising for middle-aged white Americans. Now a new analysis by the same Princeton University team has identified which part of that population was driving that trend: people without college degrees.
The researchers weave a narrative of “cumulative disadvantage” over a lifetime for white people ages 45 through 54, particularly those with low levels of education. Along with worsening job prospects over the past several decades, this group has seen their chances of a stable marriage and family decline, along with their overall health. To manage their despair about the gap between their hopes and what’s come of their lives, they’ve often turned to drugs, alcohol, and suicide. Meanwhile, gains in fighting heart disease have stalled, and rates of obesity and diabetes have ploddingly climbed.
The problem appears to be distinctly American. In Europe, mortality rates for people with low levels of education are falling more rapidly than for those with more education.
This week in “the robots are coming” watch: PriceWaterhouse estimates 38% of U.S. jobs will be replaced by robots within 15 years. This continues to lead one to think what will developed countries do with all these “technologically obsolete” workers….
People with jobs in education, health care and social work are the least at risk of being replaced, PwC said. “Creative and critical thinking will be highly valued, as will emotional intelligence,” said Jon Andrews, head of technology and investments at PwC. Meanwhile, the authors warns that more robots could mean greater social inequality. Workers that design and produce the robots, and have complementary skills to work alongside our artificial intelligence partners, will see more of the riches. Others could get left behind.
Well after those depressing news items here is a gray while spouting a rainbow…
The week ahead…
With repeal and replace out of the way, the market will focus on what it cares about much more – tax reform. Economic data will remain sparse with personal income and consumer spending replaced Friday. The week after that we get the heavy hitting economic reports.
Short term: It is nice to draw an actual trending line that slopes downward on the index charts – it’s been a long time. The S&P 500 and NASDAQ have essentially been riding their 20 day moving averages since November – a VERY long time to have such extended strength. That finally ended this week. We wrote last week that 5800 was a key support near term for the NASDAQ; while that was broken bu a fraction Tuesday it was held by the end of the week.
As with the NASDAQ the Russell 2000 broke below the 1340 level which signals the bottom of this yellow box intraday this week, but held it as of the close Friday.
The NYSE McClellan Oscillator pinched its head over the 0 line a week ago Friday but went right back to negative and has been there for a few weeks now which signals caution.
Long term: Here are 5 year charts on the major indexes; despite the “pullback” all that has happened is the NASDAQ finally retreated a tiny bit from the top of this channel it’s been in, while the S&P 500 retreated a tiny bit within it’s breakout.
Charts of interest:
Another interesting (and mostly brutal) week in brick & mortar as one company decided to end being brick & mortar entirely! Bebe Stores (BEBE) announced they were going 100% to an online strategy:
Bebe Stores, a women’s apparel chain with locations across the U.S., is planning to shut its stores and seek a turnaround as an online brand, according to people familiar with the situation. The company is trying to close the locations without filing for bankruptcy, said the people, who asked not to be identified because the efforts aren’t public. However, Chapter 11 may be required if enough landlords aren’t willing to negotiate, they said. The company, known for selling trendy going-out apparel to young women, has been operating about 170 boutique and outlet stores.
In more run of the mill retail trouble, Sears Holding (SHLD) sunk Wednesday after the struggling retailer warned that it has “substantial doubt” that it would be able to “continue as a going concern” if its turnaround plan failed. Sears announced a $1 billion restructuring effort in February that includes staff cuts and store closures.
Also Wednesday, Nike (NKE) slid 7.1% after the sportswear maker late Tuesday gave a downbeat outlook for sales growth. There was a pretty nice reflexive bounce off the 200 day moving average later in the week.
And MORE bad news in retail with Finish Line (FINL) stock bombing Friday. The athletic shoe and apparel retailer reported a fiscal fourth-quarter profit that fell well short of expectations amid heavy discounting to clear inventory.
Hi. Just another retailer falling apart. This time Gamestop (GME).
Hard hit by consumers increasingly passing up stores to download games digitally and a less-than-stellar holiday-shopping season, GameStop said Thursday it plans to close at least 150 of its 7,500 stores world-wide. GameStop’s sales slump has been more pronounced in the U.S., where comparable sales fell 13.5% in the just ended year, including a 20.8% drop during the holiday quarter.
What is this wizardry? On Thursday retailer Five Below (FIVE) surged 11% after the company reported forecast-beating earnings and said it would open 100 new stores in 2017.
Have a great week and we’ll see you back here Sunday!