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Weekly Market Recap Mar 19, 2017

Courtesy of Blain.

After a rare down week in 2017, indexes returned to gains albeit mild this past week.  Almost all the action was contained on Wednesday when the market gained nearly 1% with much of that happened post a (widely expected) Federal Reserve announcing a quarter rate hike.

The Federal Reserve on Wednesday lifted a key short-term interest rate for the second time in three months, but in a sign of caution, the central bank stuck to its forecast for just two more rate hikes this year.  The bank pointed to steady U.S. growth, an improving labor market and greater confidence among consumers and businesses to justify its decision to raise its fed funds rate to a range of 0.75% to 1%.   The vote was 9-to-1. The president of the Minneapolis Fed preferred to leave rates unchanged.

The Fed also noted a recent uptick in prices has resulted in inflation “moving close” to its 2% target, another critical component in its decision. The bank’s preferred inflation gauge, the PCE index, rose at a 1.9% pace in the 12-month span ended in January — more than double the rate as recently as last summer.

At this point I believe even most bulls would love a 3-5% pullback to get re-positioned as it’s been a VERY long rally post election with nary a pullback of significance.  But the 2 major indexes are just hanging in there.  This current move without a 5% pullback is over 3 times as long as average since the 2009 bottom!

The S&P 500 has grinded higher for 182 trading days without a 5% pullback, the longest such streak since Feb. 11, 2004, according to Dow Jones data. Over those 182 days, the S&P 500 has gained nearly 19%.  Since the start of the bull market — not counting the current run of trading days without a pullback of 5% or more — the S&P 500 has averaged going about 56 sessions before it pulls back 5% or more

On the economic front, Tuesday the government said producer prices jumped in February by 0.3%, above consensus expectations of 0.1%, bringing year-over-year wholesale inflation to 2.2%.   Wednesday, consumer prices were reported to increase by 0.1% while the increase in inflation over the past 12 months advanced to 2.7% in February from 2.5% in January, putting it at the highest level since early 2012.

Retail sales barely budged in February.

Sales at retailers nationwide rose a scant 0.1% in February, slowing sharply after big gains in the prior two months, the government reported Wednesday. The increase matched the estimate of economists.  Sales were however 3.7% higher in the first two months of 2017 vs. the same period a year ago.

Here is the 5 day “intraday” chart of the &SP 500 via Jill Mislinski:

Fun fact:  St. Patrick’s Day has been one of the best days of the year for market returns the past 2 decades!  September 16th is the best, August 30th the worst!

According to data from LPL Financial, which looked at data going back 20 years, the S&P 500  has ended higher on March 17 four-fifths of the time, with an average gain of 0.72%. That ranks as the eighth best day of the year. Only five days of the year boast a better performance, while another four tie by also rising 80% of the time.

The best day for markets, from a statistical standpoint, is Sept. 16, which has closed higher 86.7% of the time over the past 20 years, although Oct. 28 is the best day of the year from a price movement perspective, with an impressive average gain of 1.51%. The day that’s least likely to see gains is Aug. 30, which only ends in the green 15.4% of the time.

The week ahead…

With the Federal Reserve behind us and earnings season fast approaching in April, we are in for a few weeks of “sandwich time” without any key catalyst.  On the economic front all we have are existing and new home sales which don’t usually move markets.

Goldman Sachs has changed it’s stance to short term negative on the market.

“The asymmetry for equities is turning increasingly negative,” Christian Mueller-Glissmann, an equity strategist at Goldman Sachs, said in a report. “This also means more vulnerability to potential shocks, e.g., from European politics, U.S. policy, commodities and China.” The S&P 500  has gained more than 18% over the past 12 months while valuations—estimates of an asset’s worth—are nearing tech-bubble levels making equities more vulnerable to a sharp correction.

“High equity valuations alone are not a reason for drawdowns in the short term, if they reflect stable or improving macro conditions; but they indicate elevated drawdown risk,” he said.  His colleague David Kostin, chief U.S. strategist at Goldman Sachs, recently estimated that the S&P 500’s valuation rose to 18.1 times price-to-earnings per share ratio, the highest since 1976, excluding the bubble.

Index charts:

Short term: Both the S&P 500 and NASDAQ continue to hold their 20 day moving averages – it is difficult to get too negative until that changes.

The Russell 2000 actually went negative for 2017 earlier in the week but a nice rally Wednesday helped alleviate that; still this has been the laggard of the 3 indexes this year.

The NYSE McClellan Oscillator fought back from severely oversold levels to finish a smidgen over 0 Friday.

Long term: Here are 5 year charts on the major indexes; again nothing negative here other than things are extended… the NASDAQ continues to ride the upper end of this very long term channel.

Charts of interest:

Valeant Pharma (VRX) sunk Tuesday after it was reported hedge fund maven Bill Ackman exited his stake in the company, and plans to step down from the board. So if you feel bad about YOUR losses, consider this one!

Valeant’s shares closed the day down more than 10%, at less than $11 a share and a level not seen since May 2009 during the financial crisis.  Sources told CNBC on Monday that Ackman sold his 27.2 million shares in Valeant at around $11 each. Ackman’s Pershing Square Capital Management had purchased the stock at an average cost of $196 a share in 2015, according to the hedge fund’s 2016 letter.

“At its current market value, the Valeant position represented 1.5% to 3% of the various Pershing Square funds; however, the investment required a disproportionately large amount of time and resources. As a result, we elected to sell our investment and realize a large tax loss,” said Pershing in a statement released Monday.

Thursday, GoPro (GPRO) rallied nearly 16% after the sports-camera maker late Wednesday announced job cuts and said it expects to be profitable on an adjusted basis in 2017.

Guess (GES) fell 11% after the company’s late-Wednesday earnings report missed forecasts.

Keeping an eye on Snap (SNAP), it’s been a bit of a rude awakening for those who bought in on the early momentum!

Sprouts Farmers Market (SFM) surged on options activity which this weekend showed to be related to talk it could merge with Albertsons.

Have a great week and we’ll see you back here Sunday!

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