Stocks Rally During Heart Of Earnings Season

Stocks rallied last week as investors digested the latest round of largely lackluster economic and earnings data. The big winners (so far) from earnings season include: Amazon.com ($AMZN), Netflix ($NFLX), Hasbro ($HAS), Domino’s Pizza ($DPZ), Sketchers ($SKX), Dunkin (Donuts) Brands Group ($DNKN), Google Inc ($GOOG), Microsoft Corp ($MSFT), O’Reilly Automotive ($ORLY), and YUM Brands ($YUM). On the downside: Texas Instruments ($TXN), Travelers ($TRV), 3M ($MMM), Chipotle ($CMG), Pulte Group ($PHM), Biogen Inc ($BIIB), and American Express ($AXP), just to name a few. We mention this because history shows us that some of the market’s strongest performers occur from big gaps up on earnings and some of the weakest stocks gap down after reporting numbers. Separately, it is important to note that so far, the major averages continue to grind higher which suggests the bulls still remain in control – for now.  

Monday-Wednesday’s Action: Earnings Continue To Be Released

Stocks rallied sharply on Monday after China took more steps to stimulate their economy. Over the weekend, China’s Central Bank, The People’s Bank of China, lowered the reserve requirement ratio for banks to 18.5% from 19.5%. The 100 basis point cut was the largest move since November 2008 and is intended to stimulate their economy. The move came one trading day after China raise margin requirements for traders and allowed short selling in their equity market. Stocks sold off hard on the prior Friday but bounced back on Monday after more interference from global central banks. Hasbro ($HAS) gapped up after reporting Q1 results. 

Thursday-Friday’s Action: Nasdaq Hits 2000 Closing High

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 (celebrated its 6th anniversary in March 2015) and the last two major bull markets ended shortly after their 5th anniversary; 1994-2000 & 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. 

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Stocks Rally After Fed Meeting

Stocks soared last week after the Fed surprised investors and said they are not in a rush to raise rates. The move came as a big surprise because the “consensus” believed that the Fed may begin raising rates in June. Stepping back the action remains very healthy as the S&P 500 is simply bouncing after another shallow pullback in size (small % decline) and scope (short in duration). Stepping back, the S&P 500 vaulted 7% from Feb’s low of 1980 to Feb’s high of 2119. Remember, in “normal” (non Easy Money) days, a 10% rally for the entire year was welcomed. So clearly 7% in under a month is a strong run and the market has earned the right to pullback and digest that move. After that strong gain it pulled back 3.8% and is now bouncing back to flirt with new record highs – again. It is important to keep in mind that in very strong bull markets (present market included) weakness should be bought, not sold (i.e. buy the bounce after the dip).

Mon-Wed’s Action: Nasdaq Flirts With 5k

Stocks soared 1% on Monday as the US dollar pulled back a bit to digest its latest (and very strong) rally. Crude oil slid to a fresh low, hitting the lowest level since 2009! Economic data was less than stellar. Home builder confidence fell to 53 in March, down from a high of 59 last September. Before Monday’s open, the Empire State Index slid to 6.90 for March, below February’s 7.78. Finally, Industrial production rose 0.1% in February, below expectations, with capacity utilization slightly lower at 78.9%. Stocks were mixed on Tuesday as the world waited for the Federal Reserve to conclude its latest March meeting. Economic data was note ideal – housing starts plunged -17% in February, missing the -2.4% forecast. On a healthier note, building permits increased by +3%, beating estimates for a gain of +0.5%. Finally, the Citi ($C) Economic Surprise Index, which measures trends in economic data, slid to -72, missing estimates and the lowest reading since 2011. Overseas markets largely rallied as global central banks continue to pump money into the system. China’s Central Bank (People’s Bank of China) cut its seven-day reverse-repo rate to 3.65% from 3.75% in an attempt to help stimulate their economy. The came a few days after China’s Premier Li Keqiang promised to take action to keep the Chinese economy on track even as their GDP continues to slow. Stocks soared on Wednesday after the Fed gave the market “The Perfect Hedge.” As expected, the Fed left rates steady and removed the word “patience” from its after meeting commentary. The big news came when the Fed made it clear that it was not in a rush to raise rates because they are still concerned with the lackluster economy and deflation remains more of a threat than inflation. This sent stocks soaring as investors cheered the fact that the Fed is not in a rush to raise rates. Then in Janet Yellen’s Press Conference, she said the Fed remains data dependent and will not rule out a possible rate hike in June – hence creating “The Perfect Hedge.” At this point, no one, including the Fed, knows what will happen in June…It all depends on the data..

Thurs & Fri’s Action: Nasdaq Closes Above 5k

Stocks opened lower on Thursday as the market digested the Fed’s latest meeting and the latest round of economic data. The government said, weekly jobless claims edged slightly higher to 291k, the national current account deficit widened significantly in Q4 2014 to the largest level since 2012, The Philly Fed index rose to 5.0, missing estimates for 7.0. Finally, Leading indicators grew by 0.2%, matching the Street’s forecast. On average the economic data is less than thrilling which means the Fed will likely hold off on raising rates in the near future. Buyers returned on Friday and sent stocks soaring after the bulls showed up and bought the “dip” and a slew of options expired. Friday was quadruple witching day and that added a ton of volume as stocks rallied. The tech heavy Nasdaq composite closed above 5k and is about to take out its record high, set in March 2,000.

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.

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