Daily Market Commentary

Week In Review: Stocks Fall As Earnings Season Begins

Stocks Fall As Earnings Season Begins

Stocks fell hard last week as the market digested the latest round of mixed economic and earnings data. Investors continue to wait for a new catalyst to emerge to help the benchmark S&P 500 break out of its current 5-month trading range. Since December 2014, the S&P 500 has been trading between 2,119 (resistance) and 1,972 (support). At this point, investors want to see how the economy and corporate earnings performed in Q1 for a better sign of when the Fed will raise rates. So far, it is too early to tell for sure, but the “data” remains weak – which likely means a June rate hike is off the table. It is best to remain patient during a range-bound market until either support (bearish) or resistance (bullish) is broken. Until then, we have to expect this sloppy sideways action to continue. Stepping back, it is important to note that even with Friday’s sell off, the S&P 500 is only -2% below its record high – which is very impressive. Eventually this market will get in trouble and roll over, but it has earned the bullish benefit of the doubt until more technical damage emerges. 

Monday & Tuesday’s Action: Earnings Fail To Impress

Stocks ended mixed on Monday as earnings season began and Apple Inc ($AAPL) began taking preorders for their highly anticipated iWatch. The initial data from the company showed demand remained very strong as sales topped 1 million units. In other news, shares of Netflix ($NFLX) jumped over +3.4% after Citigroup ($C) raised the stock to Buy from Hold and said the recent drop in the stock price to low $400’s offered investors a chance to “buy the dip.” The company also is believed to be in the early stages of exploring a stock split to lower their price and increase the shares outstanding. Social media giant, LinkedIn ($LNKD) jumped 3.6% after analysts praised their acquisition of Lynda.com. Overseas, Chinese stocks soared after the Hong Kong Monetary Authority intervened in foreign exchange markets to prevent its currency from rising. China said its CPI rose in March and beat estimates.

It was another quiet day on Tuesday as investors digested the latest round of economic and earnings data. Retail sales grew by +0.9% in March which was the first increase since November. Even with the small gain, retail sales still missed the +1.1% consensus which is the latest in a series of weaker-than-expected economic data. A separate report showed that the Producer Price Index matched estimates. JPMorgan Chase ($JPM) and Wells Fargo ($WFC) reported Q1 results, JPM broke out to a new high while WFC fell. In other news, shares of 58.com ($WUBA) surged a whopping +33% after news spread that the company agreed to merge with competitor, Ganji.com. The combined company will be worth an estimated $10 billion. Avon Products ($AVP) surged 14.2% after the Wall Street Journal said the company is exploring strategic alternatives.
Stocks rallied on Wednesday after Crude Oil broke out of a bullish double bottom pattern and the European Central Bank (ECB) stayed the course with their massive QE program. Economic data was mixed. The Empire Manufacturing survey unexpectedly fell in April and missed estimates. The index fell -1.19 in April versus March’s 6.90 total. Elsewhere, the National Association of Home Builders housing market index jumped sharply to 56 in April. The Fed released its Beige Book for April which was not exciting. After Wednesday’s close,  Standard & Poor’s cut Greece’s credit rating to “CCC+” from “B-” with a negative outlook.

Wednesday & Thursday’s Action: Stocks Hit Hard on Friday

Stocks opened lower on Thursday even after a slew of high profile companies released their Q1 results. So far it’s been a mixed bag with the standout leader is Netflix ($NFLX) enjoying a huge break-away gap after reporting their Q1 results. The three big IPO’s this week were: Party City ($PRTY), high frequency trading firm, Virtu Financial ($VIRT) and ETSY inc, ($ETSY), an online marketplace to buy and sell handmade goods. Economic data remains weak at best. Housing starts grew by 926k in March, missing estimates but above Feb’s reading of 908k. Elsewhere, weekly initial jobless claims came in at 294k, beating estimates and hitting the lowest level since 2,000.  The Philadelphia Fed index for April rose to +7.5 which also beat estimates. Before Friday’s open, overseas markets were hit hard after China tightened their margin requirements and allowed investors to sell stocks short. The selling spilled over to our markets and a slew of high ranked stocks broke support in heavy volume. The Shanghai stock market doubled in the last 10 months and this exceptionally strong rally is now known as the Beijing Put – (meaning China’s government is believed to be the main force behind the very strong rally in their stocks). Friday’s large sell off may be the beginning of continued selling because the market is way overdue for a nice pullback. 

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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