Stock Market Setting the Plate for a Q1 Finale

Equity markets may have broke a 5 week winning streak last week, but it certainly felt much more like healthy consolidation than a rally killing rout.   Volumes were notably light all week, and markets showed their resilience Thursday, as sharp declines in the first hour were more than halved by days’ end with market averages closing at their highs of the day.

With four trading days left in Q1, The S&P 500 at 2036 is negative YTD by 0.4%.  On reflection to where we were 6 weeks ago, both professional money managers and individual investors should be thrilled if they’re within 1% of that marker.

Consider the differential effect on tens of millions of investors looking at their quarter end statements for their retirement or investment accounts showing a gain or loss of 1%, rather than a loss of 10% to 12%.  Likewise for professional money managers writing their Letter to Investors summarizing results for the first quarter.

Whether last week was just a pause before a continuation of the rally off the mid February lows, or a prelude to a pull back in prices that retrace maybe a third to a half of that rally is yet to be determined.   If you’re looking for near term support and resistance, the S&P 500 came within 6 or 7 points of its 200 day moving average of 2017 during the first hour of trading Friday, after having failed to get through 2050 multiple times in the 4 or 5 days prior.

This week is likely to provide plenty of crosscurrents leading up to the end of the quarter Thursday, immediately followed by the March payroll and employment report Friday morning.  The most likely scenario is that stocks  at least “hold their own” through Thursday.

Here’s just a few of the potential trigger points to look at before we get to Thursday:

  • Oil being challenged to hold the $40 level after a near 50% rally off the lows from early February will have plenty of input on the durability of the recent stock market rally.
  • Oil remains a supply driven market, with production still running at near capacity and inventories levels hitting new highs nearly every week.

We’ve already had the  February Personal Income and Consumption come in at +0.2% for the month, which maintains the +1.7% YoY pace from last month.  Core PCE is the favored barometer of the FOMC for measuring inflation, which they have set at an elusive target of 2.0%.

Note that this index has lagged Core CPI which at last read came in at +2.3% YoY.  Also keep in mind that FED Chair Yellen gave the market a strong indication 2 weeks ago that they are likely to let inflation “run through” their 2% target before a significant acceleration to their pace of interest rate hikes.

The Heavy dose of FED Speak gets back in full stride Tuesday when we have 3 high profile FED officials speaking, highlighted by FED Chair Yellen’s mid day address to the New York Economic Club. Following hawkish comments from St Louis FED President Bullard last Friday,  expect the Q&A following the Yellen speech Tuesday to focus on expected rate hikes for the remainder of 2016.

Chicago FED President Charles Evans speaks both Wednesday and Thursday, with 100% certainty he will state his preference for no further rate hikes ever, regardless of how high inflation and the stock market get. Just wanted to see who’s paying attention, but clearly Evans is a perma dove.

Stock Market Setting the Plate for a Q1 Finale

The Early Line:   Stocks are starting the day with a modestly positive bent with S&P futures 5 to 6 handles higher, although this is only half what their gains were between 6:00 and 7:00 am.  

Keep in mind the S&P 500 level of 1250 was stubborn resistance last week.  Volumes will remain a bit light today, as most of the Eurozone is closed for Easter Monday, but we’ve got plenty on the plate through the remainder of the week.

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