Very tricky action in the market this week. Monday’s rally looked really bullish – we stated at the end of the prior week we wanted to see how this small wedge in the S&P 500 and NASDAQ charts resolved. It looked like a breakout to the upside Monday. However, a nasty reversal Tuesday – with a close below the prior day’s low – was daunting. Then Wednesday and Thursday the action was poor. By the end of the week things were not looking anywhere near like they did on Monday at the close. All in all, it was another week of volatility not seen in almost all of the very unusual 2017. The volatility is still not subsiding – we had daily move of >1% four of five days this week; in 2017 you could go months without a single day of that sort of swing!
We also seem to be past the stage of the “Goldilocks” economy where any news is good news – new Fed Chairman testified Tuesday the economy is strong, and traders freaked out fearing rate hikes yada yada yada.
“We’ve seen continuing strength in the labor market. We’ve seen some data that will, in my case, add some confidence to my view that inflation is moving up to target. We’ve also seen continued strength around the globe, and we’ve seen fiscal policy become more stimulative,” Powell said in testimony. Powell’s comments, especially his personal view about the economy, appeared to turn investors cautious as they considered the possibility of faster pace of rate increases.
Speaking of unusual the S&P500 actually finished the month negative for February. That should not be considered unusual – but it has been of late. That’s the first losing month in 10!!
The other”highlight” of the week was President Donald Trump saying he would impose tariffs on steel and aluminum imports, raising concerns of protectionist trade policies
Trump told steel and aluminum executives gathered at the White House on Thursday that the U.S. would announce tariffs on imports of those products next week. Trump said the U.S. would set tariffs of 25% for steel and 10% for aluminum.
“Maybe you’re doing a service for few steel and aluminum companies but you are crushing the rest of the market because people know that this is not what people want to see and it’s going to be a big problem because this ripples through the market and if you are General Motors you could be suddenly paying more for aluminum or steel,” said Ian Winer, head of equities at Wedbush Securities. “Either your margins are going to be hit or you’re raising prices,” Winer said. The Wedbush trader said the talk of tariffs might prompt a similar response from China or other countries that could hurt U.S. corporations.
On the economic front, ISM Manufacturing rose to 60.8 in February, up from 59.1 in January, to reach the highest level since May 2004!
For the week the S&P 500 lost 2% and the NASDAQ shed 1.1%.
Here is the 5 day weekly “intraday” chart of the S&P 500 …not via Jill Mislinski.
The week ahead…
The employment data for the month will be released Friday; expectations are for a 4.0% unemployment rate and 195K jobs created. A lot of talk about a “trade war being ignited” but that seems a bit overblown at this point.
Short term: We ended the prior week with somewhat well defined “wedges” on both major indexes. Monday the indexes burst to the upside – bullish! Only to see sharp reversals Tuesday – bearish! So it is great to sound smart at the end of the week on a Sunday looking back with 20/20 hindsight but this was the type of week that would rip short term traders to bits if they used technical analysis!
The Russell 2000 remains the weakest chart of the major indexes.
What is interesting is despite all the selling mid week, it took until Thursday for the NYSE McClellan Oscillator to go negative. Certainly mixed messages out there.
Long term: If this is the end of the correction, it was but a minor blip in our parabolic weekly chart.
Charts of interest / Big Movers:
Monday, Dean Foods (DF) tumbled 13% after it reported fourth-quarter earnings that missed expectations. It also issued an outlook that was below forecasts.
Tuesday, AutoZone (AZO) fell by more than 11% after profits, same-store sales missed forecasts.
Fitbit (FIT) tumbled 12% after revenue and earnings fell short of expectations late Monday.
Wednesday, retailer TJX (TJ Maxx etc) jumped 7% after the retailer reported fourth-quarter sales that beat consensus forecasts, a dividend increase and a new share buyback program. Looks like it is one brick & mortar retailer still surviving Amazon.
Not so much on lingerie?? L Brands (LB) tumbled nearly 14% Thursday after the Victoria’s Secret parent late Wednesday gave a quarterly outlook that appeared to disappoint Wall Street.
Etsy (ETSY) soared 20% Wednesday after the online crafts marketplace late Tuesday reported results and outlook that topped Wall Street estimates.
A research note from RBC Capital Markets on McDonald’s (MCD) cut its U.S. same-store expectations. The stock did not enjoy that.
Ambarella (AMBA) gained 13.5% Friday after the semiconductor company’s fourth-quarter earnings out late Thursday beat forecasts.
Have a great week and we’ll see you back here Sunday!