Stocks Fell After Hitting New Highs Last Week

After all was said and done, underneath the surface, it wasn’t a pretty week on Wall Street. On Monday, the benchmark S&P 500 hit a new high for the year, then turned lower after several key areas of the market began to fall out of bed. Social media stocks were smacked hard last week after several key companies lowered guidance. The Fed met last week but didn’t say much as they removed all calendar references from their after market commentary and remain data-dependent. So far, the data remains lackluster at best which lowers the odds of a rate hike in the near future. The big winners (so far) from earnings season include: Amazon.com ($AMZN), Netflix ($NFLX), Hasbro ($HAS), Domino’s Pizza ($DPZ), Skechers ($SKX), Dunkin (Donuts) Brands Group ($DNKN), Microsoft Corp ($MSFT), O’Reilly Automotive ($ORLY), and YUM Brands ($YUM), Skywest ($SKYW), Web.com ($WWWW), Equinix ($EQIX), Styngenta ($SYT), Nutri System ($NTRI), Brink’s Co ($BCO), Teradyne Inc ($TER), Skyworks Solutions ($SWKS), GoPro ($GPRO), Estee Lauder ($EL), Abiomed Inc ($ABMD), Golar LNG ($GLNR), Energizer Holdings ($ENR), RetailMeNot, Inc ($SALE), Herbalife ($HLF), BlueBird Bio ($BLUE), HubSpot Inc ($HUBS), Alibaba Group ($BABA), Qorvo Inc ($QRVO), Visteon Copr ($VC), Norwegian Cruise Line Holdings ($NCLH)
On the downside: Whole Foods Market ($WFM), Keurig Green Mountain ($GMCR), Kate Spade ($KATE), Lannett Co ($LCI), Nu Skin ($NUS), Terra Nitrogen ($TNH), Tumi Holdings ($TUMI), Noodles & Company ($NDLS), Qualys ($QLYS), Groupon Inc ($GRPN), News Corporation ($NWSA), Vitamin Shoppe Inc, ($VSI), Fossil Inc ($FOSL), Frontier Communication ($FTR), TriNet Group ($TNET), Zulily Inc ($ZU), Weight Watchers ($WTW), Walter Energy Inc. ($WLT), Skullcandy ($SKUL) Twitter ($TWTR), Yelp ($YELP), LinkedIn ($LNKD), Constant Contact (CTCT), Accuray ($ARAY), Cooper Tire & Rubber ($CTB), Abaxis ($ABAX), Texas Instruments ($TXN), Buffalo Wild Wings ($BWLD), Baidu Inc. ($BIDU), Stratasys ($SSYS), Harman ($HAR), Nokia ($NOK), Travelers ($TRV), 3M ($MMM), Chipotle ($CMG), Pulte Group ($PHM), Biogen Inc ($BIIB), Generac Holdings ($GNRC), First Solar ($FSLR), and American Express ($AXP), just to name a few. We mention this because history shows us that some of the market’s strongest performers occur from big gaps up on earnings and some of the weakest stocks gap down after reporting numbers. Even though we saw some distribution (selling) last week, it is important to note that on Monday, the major averages hit new highs (record highs and 2000 highs for the Nasdaq), and the broader trend remains higher – for now. In the short term, the long range-bound action we have seen most of the year remains in place.

Monday-Wednesday’s Action: Earnings Continue To Be Released

On Monday, stocks fell after a slew of biotechs got hammered. The benchmark S&P 500 hit a fresh record high on Monday but then turned lower which is not an ideal sign. The biotechs have been one of the strongest areas in the market over the past few years and continues to be a good proxy for the broader risk appetite from institutional investors. Therefore, that area must be watched closely. Once again, China’s Shanghai Composite led other global stock markets and soared +3.0% after reports spread that the People’s Bank of China (China’s Central Bank) was looking into buying local government bonds (Their latest attempt to boost markets). In Europe, optimism spread regarding the ongoing Greek drama. On the upside, steel and gold stocks rallied nicely as they bounce off a near term low. The Market Vectors Gold Miners ETF ($GDX) and Market Vectors Steel ETF ($SLX) rallied +2.1% and +0.8%, respectively. After Monday’s close, Apple Inc ($AAPL) reported another very strong quarter with iPhone sales as the standout winner.

Stocks ended mixed on Tuesday after another see-saw session on Wall Street. Investors digested the latest round of economic and earnings data and waited for the Fed. The $IBB (popular biotech ETF) broke below its 50 DMA line for the first time since February. Almost instantly, the bulls showed up and did their best to defend support. The buying helped intra-day but by the close the $IBB closed below its 50 DMA line on monstrous volume. Twitter Inc. ($TWTR) plunged 18% on Tuesday after their earnings were leaked intra-day. The stock was briefly halted an hour before the close and then reopened down 20%. Twitter was scheduled to release their earnings after the bell but they posted their results on their website during the day and a data mining company tweeted (which is ironic) the results which sent the stock plunging. The company said they do not manage their investor relations page and the company is looking into who leaked the results. Economic data was mixed: the Cash Shiller 20-City Home Price Index rose by +5% in February, beating estimates of +4.7%. The Conference Board’s Consumer Confidence Index slid to 95.2 in April, missing estimates for 102.2.

Before Wednesday’s open, the government reported Q1 GDP rose by 0.2%, missing estimates for a 1% gain. It was also much lower than Q4 2014’s reading of 2.2%. The weaker-than-expected reading sent the USD and U.S. Bonds plunging as pressure eased regarding an imminent rate hike from the Fed. The euro surged on the news and broke out of resistance of a two month base which sent the German Dax (Germany’s stock market) and several other European equity markets lower. At 2pm EST, the Fed concluded its latest 2-day meeting and left rates steady near zero percent, expressed concern over the economy, and said they remain “data-dependent.” In other news, p ending home sales rose 1.1% in March which was the fastest increase since last summer and beat estimates for a gain of 1.0%.

Thursday-Friday’s Action: Biotechs Break 50 DMA

Stocks fell hard on Thursday on the last trading day of April. Biotech stocks dragged the market lower but the selling was broad in nature. Economic data remained mixed. First, weekly jobless claims slid to the lowest level since April 2000. Claims fell to 262k, beating estimates for 290k. The Chicago PMI rose to 52.3 in April, beating estimates for a gain of 50. Personal income growth was flat in March, missing estimates for +0.2% gain and missed February’s 0.4% reading. Personal income fell to the lowest level since December 2013 which bodes poorly for consumer spending and the broader economy. The employment cost index rose 0.7% in Q1 2015, beating estimates for 0.6% gain. Stocks bounced on Friday on the first trading day of May. Earnings data was mixed: The ISM Manufacturing index came in at 51.5, missing estimates for 52. Construction fell -0.6%, missing estimates for 0.4%. Consumer sentiment came in at 95.9, almost matching estimates for 96. Finally, the PMI manufacturing index fell to 54.1, missing estimates for 54.5.

Market Outlook: The Central Bank Put Is Alive And Well

Remember, in bull markets surprises happen to the upside. This has been our primary thesis since the end of 2012. We would be remiss not to note that this very strong bull market is aging (celebrated its 6th anniversary in March 2015) and the last two major bull markets ended shortly after their 5th anniversary; 1994-2000 & 2002-Oct 2007). To be clear, the central bank put is very strong and until material damage occurs, the stock market deserves the longer-term bullish benefit of the doubt. As always, keep your losses small and never argue with the tape.

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