Oversold Bounce Continues…For Now
Stocks rallied nicely last week, with the bulk of the gain occurring on Tuesday. The major indices ended higher and are now up very nicely from the Feb 11 low. The benchmark S&P 500 has soared 11% over the past 3.5 weeks which is a huge move during that time. Remember, in normal times (before massive interference from global central banks), a 10% move for the entire year was considered healthy. So an 11% in 3.5 weeks is clearly a HUGE MOVE and that type of wild action, does not happen in bull markets. Large wide and loose swings typically occur in bear markets. Prior to the 10% rally, we saw the S&P 500 fall 7% in 2 weeks. In the short term, the market has become overbought and the intermediate and long term outlook improved considerably. Much of this rally can be attributed to the hope of more easy money from global central banks and important beaten down areas oft he market are trying to bottom. Global central banks love interfering with markets and have distorted the playing field for years. Any strong intervention may change the playing field and lead to a stronger bounce. Most central banks meet this month and for the most part they are all keeping the easy money spigots open (for now). The other important bullish driver has been that many beaten down areas of the market are trying to bottom such as emerging markets ($EEM), oil ($XLE $OIH), steel ($X), transports ($IYT), materials ($XLB, junk bonds ($JNK), just to name a few. We’ll see if that continues.
Monday-Wednesday’s Action: Stocks Jump Ahead of Jobs Report
Stocks rallied on Monday after the latest round of tepid economic data was released. Over the weekend, the G-20 meeting disappointed investors and China announced more easy money. The G-20 meeting of finance minsters and central bank governors ended in a stalemate which disappointed markets. Elsewhere, China’s stock market fell again which prompted China’s Central Bank to cut it’s reserve requirements in another attempt to stimulate their market. In the U.S, economic data remained tepid at best. Chicago PMI fell to 47.6, missing estimates for 52.9. Pending home sales slid by -2.5% in January, missing estimates for a gain of +0.5%. The Dallas Fed Mfg Survey fell to negative -8.5. The Dallas Fed’s general activity index was much worse than expected and fell to negative -31.8 in February vs minus 34.6 in January.
Stocks rallied on Tuesday on the first day of the new month. The Dow Industrial Average ended higher in February but the other major indices ended near their monthly highs but slightly in the red for the month. Super Tuesday has historically been a positive period stocks. Going back to 1992, the market has rallied one week after the last six Super Tuesdays. Overnight, China said its Purchasing Managers Index fell to 49 in February which was the lowest reading since 2009. Meanwhile, the services index slid to 52.7 from 53.5 in January which was the weakest reading in seven years. The weak data is one reason why China’s central bank and government have been throwing money to stimulate their economy. In the U.S., the February ISM manufacturing index came in at 49.5 which is below the boom/bust level of 50 but above the Street’s estimate of 48.5. In other news, construction spending swelled by +1.5% in January to its highest level since 2007. The Markit manufacturing PMI for February came in at 51.3 which matched estimates.
Stocks were relatively quiet on Wednesday as investors digested Tuesday’s very strong rally. Overnight, Moody’s Investors Service cut the outlook on China’s credit rating from stable to negative which bodes poorly for the global market. In the U.S. MBA Mortgage applications fell -4.8%, lower than the last reading of -4.3%. ADP, the country’s largest private payrolls company, said private employers added 214,000 new jobs last month, beating estimates for 185,000. The Fed’s Beige Book showed economic activity increased in most districts. In other news, Sports Authority filed for Chapter 11. Sports Authority became the first major U.S. retailer to file for bankruptcy in 2016, as they scramble to fight fierce competition from Wal-Mart (WMT) Amazon (AMZN) and others.
Thursday-Friday’s Action: Last Jobs Report Ahead of Fed Meeting
Stocks edged higher on Thursday as investors digested the latest economic data and waited for Friday’s jobs report. In the U.S., weekly jobless claims came in at 278k, slightly higher than the Street’s estimate for 270k. Revised fourth-quarter productivity fell -2.2% compared to estimates for negative -3.2%. Unit labor costs grew by 3.3%, missing estimates for 4.7%. The PMI Service index came in at 49.7, lower than the last reading of 53.2. The ISM service index came in at 53.4, beating estimates for 53.1. Factory orders grew by 1.6%, missing estimates for 2%. Before Friday’s open the government said U.S. employers added 242k new jobs in Feb, beating estimates for 190k.
Market Outlook: Bear Market Rally
The market is deeply oversold so keep in mind the strongest rallies in history occur during bear markets (a.k.a bull traps). As always, keep your losses small and never argue with the tape. If you want help with the market, contact Adam or – Join FindLeadingStocks.com.