Stocks Fall As Oil Surges 14% Over Past Two Weeks
Stocks fell hard last week as the major averages paused to digest their recent and robust rally. A slew of “leading stocks” (mainly biotech, small-cap and tech stocks) fell hard last week which dragged the major averages lower. In other news, Crude Oil surged over +20% in the last 9 trading days! Clearly, that is not an insignificant sum and crude is actually forming the right side of double bottom pattern. Remember crude oil is a major global commodity, not a thinly traded penny stock, so a +20% move in a few trading days is definitely not normal and something that should be watched closely. In most cases, when we see major global markets (stocks, currencies, and commodities) trading like penny stocks — AFTER a big move, that typically signals trouble lies ahead for Wall Street. Having said that it is important to note that we have not seen the S&P 500 correct 10% or more since June 2012! That is a very long time and the market is way overdue for a nice pullback. Additionally, it is important to note that over the past few years- March-June period tends to be a weak period for US stocks. We’ll see what happens but want to urge a caution right now.
Mon-Wed’s Action: Nasdaq Below 5k
Stocks were quiet on Monday as investors digested the prior week’s Fed induced rally. Economic data was less than stellar. The Chicago Fed National Activity Index and Existing Homes Sales reports both missed estimates. Stocks were quiet on Tuesday as traders digested the latest round of mixed economic data. Inflation was tame as the Consumer Price Index rose +0.2% in February, which matched expectations. A closer look showed that the core reading, which strips out food and energy prices, came in slightly above consensus. Meanwhile, New Home Sales in Feb rose to 539k, beating Wall Street’s 464k estimate. A separate report showed the January FHFA House Price Index rising +0.3%, missing estimates for a +0.5% gain. The March Richmond Fed Manufacturing Index disappointed by a large margin, falling to negative -8 which is not ideal. Finally, the March Markit US Manufacturing PMI beat the consensus and jumped to 55.3.
Thurs & Fri’s Action: Leaders Drag The Market Lower
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 (celebrating its 6th anniversary in March 2015) and the last two major bull markets ended shortly after their 5th anniversary; 1994-March 2000 & Oct 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.