Stocks are Yellin for Yellen 3-30-16

Tuesday recap:   Equity markets cheered the midday speech by FED Chair Janet Yellen at the New York Economic Club Tuesday as stocks turned morning losses into afternoon gains.

Investors shrugged off a further pullback in Crude Oil, which settled lower for the fifth straight day.  The tech heavy NASDAQ, +1.7% at 4846.62 and the Russell 2000, +2.7% at 1109.08 easily outperformed the S&P 500, +0.9% at 2055.01, while the S&P 500 did get through the 2050 level that had provided stubborn resistance last week.

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Market Internals were quite impressive with the advance/decline stats for the NYSE positive by nearly +4:1, while the on the NASDAQ advancing issues beat decliners by 3:1.   In a sharp contrast to where the market was 6 weeks ago, we had 200 new 52 week highs on the NYSE vs. only 10 new lows.  I doubt we’ve seen that strong a level of 52 week highs since last Spring if not longer.

Were that number to double in a continuation of this rally during the next week, it could signal a warning of being overbought in the near term.

Investors shrugged off a further pullback in Crude Oil, which settled lower for the fifth straight day,  and was the primary source of angst contributing to the initial weakness in stocks the first couple hours of the day.

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While many oil stocks rallied well off their morning lows, the majority of the “real buying” was focused on the blue chip multinationals with healthy dividend yields and even those names lagged the performance of the broad market averages.

Banks also underperformed.  The bond market had an equally positive day to stocks with the yield on the 10 year Note rallying to 1.8% after having briefly flirted with 2% earlier in the month.  With FED Chair Yellen reassuring markets that further interest rate increases would happen at a very Gradual pace, the caveat for the banking sector is not to look for a significantly steeper yield curve anytime soon.

Many investors got trapped in the “Buy the Banks for a steeper yield curve trade” in the first half of Q4 last year and it’s likely they’ll be hesitant to re enter that position until they see tangible signs of the yield curve steepening.

Stocks are Yellin for Yellen 3-30-16

The Early Line: It looks like we’ll have a continuation move this morning backing up the rally from Tuesday.

Early trading in US Equity Futures have the S&P 500 higher by 12 handles, with the DJIA looking for an early 100+ point gain to start the day.  Stock had one of the strongest separation days from oil that we’ve seen in months and continuing to break that linkage could get a stiff test by mid day if the oil inventory numbers at 10:30 continue their relentlessly bearish trend.

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