Finally some action out there! The comatose market of much of 2017 finally saw some volatility with a large drop Wednesday as the political theater finally hit markets, but that was offset by solid gains Monday and Friday. Wednesday’s move was the largest drop since September 2016 (!!!) but in the end bears could only push the S&P 500 back 0.38% for the week. Until Wednesday’s move the S&P 500 had been on the longest streak of 0.5% or less daily moves since 1969!
“This isn’t about who is right or wrong; it is about a concern that a number of things could derail the future of economic growth that were not present a month ago.” Kevin Giddis, head of fixed-income capital markets, said in a research note.
“Even though optimism for Trump’s pro-growth agenda has mostly unwound, if this political crisis deepens and elevated volatility persists, equities could see further weakness in the short-term driven by deleveraging across fundamental and systematic strategies,” J.P. Morgan wrote in a note to clients, adding that “fundamentals remain supportive.”
The probability of a Trump impeachment has gone up after the recent events, analysts noted, with bookmaker Paddy Power’s odds reflecting a 33% chance it could happen. An impeachment requires the backing of two-thirds of the Republican-controlled Senate.
Many are pointing to the massive global asset purchase by central banks which is keeping markets elevated and tapping away volatility and so much money is chasing so few assets. Here is a fascinating chart on the scope – that’s about 9 TRILLION thrown at assets in the past decade. With 2 TRILLION of that in the past 12 months.
“It’s a battle of bearish political headlines versus bullish liquidity where liquidity has the upper hand. Like an IV drip, the world’s central banks, the Fed included, continue to buy financial assets with printed money,” said Ablin. “Over the last 12 month that figure approached $2 trillion.
The U.S. dollar fell to a 6 month low and has now erased the entire Trump rally as the initial reaction of the market was trump would be pro strong dollar based on his rhetoric in the campaign.
Economic data was again sparse but Tuesday industrial production grew at the fastest monthly rate in more than three years, topping analysts’ forecasts.
Here is the 5 day weekly “intraday” chart of the S&P 500 via Jill Mislinksi.
The reason the divorce rate for those over 50 is ramping up….
The week ahead…
The second reading of first-quarter U.S. gross domestic product will be released on Friday and is expected to be revised up from a preliminary estimate of annual growth of 0.7% to 0.9%. Tuesday will see new home sales for April; Wednesday brings existing home sales.
Minutes from the latest Federal Reserve meeting will be released Wednesday – some now think the interest rate hike in June might be the last for the year.
Of course Washington theatrics will remain in play.
Short term: the NASDAQ was massively overbought and extended but Wednesday’s pullback helped relieve that. The S&P 500 remains stuck below those highs from early March.
The Russell 2000 continues it’s inability to get out out his long standing range in yellow. Broken record alert.
The NYSE McClellan Oscillator has now been sustained in the red for quite a while which is normally a cautionary tale.
Long term: Here are 5 year charts on the major indexes; we are a broken record here but it would take a very severe selloff to change prospects here. The selling Wednesday did little to dent the NASDAQ’s push out it’s weekly channel.
Charts of interest:
Monday, Patheon (PTHN) soared 33% after Thermo Fisher Scientific(TMO) said it was buying the company for $7.2 billion.
Tuesday, Etsy (ETSY) advanced 21% after two private-equity firms revealed they’ve bet on the online marketplace for handmade products.
Wednesday, Red Robin Gourmet Burgers (RRGB) soared 23% after the restaurant chain late Tuesday reported better-than-expected first-quarter earnings and sales.
Thursday, Cisco Systems (CSCO) sunk 7.2% and hitting their lowest level since January as the networking giant reported its revenue decline was accelerating and said it would lay off another 1,100 workers.
Friday, Deere (DE) jumped 7.3% after earnings and sales beat Wall Street forecasts.
Autodesk (ADSK) rallied nearly 15% as the company said its shift to a subscription-based software model was going well.
Dynegy (DYN) soared nearly 26% Friday, and finished at a three month high after reports that the power producer received a buyout offer from Vistra Energy.
It was a week in America…. therefore a retailer was compelled to post bad results. This week it was Foot Locker (FL).
Have a great week and we’ll see you back here Sunday!