STOCK MARKET COMMENTARY:
FRIDAY, MARCH 21, 2014
The bulls remain in control of this market as the major averages continue to shrug off a slew of “bad” headlines. The benchmark S&P 500 (SPX) is back in the black for month, quarter and year which illustrates how strong the bulls are right now. Since the Feb 5th low of 1737, the S&P 500 jumped a very impressive 8.4%. Remember, in a normal (non QE) world, a 10% move for the entire year would be considered healthy. So +8.4% in 7 weeks is very powerful especially as the market shrugged off several “less than stellar” headlines in recent weeks. As expected the market had a little pullback that was shallow in both size (% decline) and scope (days/weeks, not months). As long as this healthy action continues, the market deserves the bullish benefit of the doubt.
MON-WED’S ACTION: Crimea, Shcrimea, Stocks Rally
Stocks rallied on Monday after Crimea officially voted to leave Ukraine. Stocks rallied not because there was a deescalation but because -so far- there has yet to be an escalation that would threaten the global economy. Crimeans voted overwhelmingly in favor (95.5% of votes cast) to join Mother Russia. The election was a foregone conclusion and the outcome of the election was not accepted as valid by Obama or the EU leaders. The drama continued but the fact that the much anticipated event passed without derailing the global economy helped investors breath a sigh of relief. Economic data in the US was mixed. The Empire Manufacturing Index for March was 5.6, beating estimates for 5.4). The NAHB Housing Market index, which measures builder confidence, fell to 47 in March, missing estimates for 50. Remember, readings above 50 signal expansion.
Stocks edged higher on Tuesday after Putin accepted the referendum. Separately, housing starts slid by 0.2% in February to 907,000 from an upwardly revised 909,000 (from 880,000) in January. A separate report showed consumer prices edged up 0.1% in February after rising by 0.2% in January.
Stocks fell on Wednesday after Janet Yellen accidentally showed the Fed’s hand in her first press conference as Chairwomen. As expected, the Fed said that they will taper QE by another $10B bringing the total down to $55B/month ($25 billion in agency mortgage-backed securities and $30 billion in longer-term Treasuries). Additionally, the FOMC decided to drop the 6.5% unemployment target from its forward guidance. instead the Fed decided to shift the focus to a ‘wide range of information’ on jobs as well as inflation. The big sell off occurred when Yellen answered a question as to what the Fed means by “considerable time” for keeping the current target range for the federal funds rate after the asset purchase program ends. Yellen said “probably six months.” She inadvertently pushed the time table ahead by 6 months. Traders were expecting the rate hike to occur in July and now are looking for April.
Stocks edged higher on Tuesday after Putin accepted the referendum. Separately, housing starts slid by 0.2% in February to 907,000 from an upwardly revised 909,000 (from 880,000) in January. A separate report showed consumer prices edged up 0.1% in February after rising by 0.2% in January.
Stocks fell on Wednesday after Janet Yellen accidentally showed the Fed’s hand in her first press conference as Chairwomen. As expected, the Fed said that they will taper QE by another $10B bringing the total down to $55B/month ($25 billion in agency mortgage-backed securities and $30 billion in longer-term Treasuries). Additionally, the FOMC decided to drop the 6.5% unemployment target from its forward guidance. instead the Fed decided to shift the focus to a ‘wide range of information’ on jobs as well as inflation. The big sell off occurred when Yellen answered a question as to what the Fed means by “considerable time” for keeping the current target range for the federal funds rate after the asset purchase program ends. Yellen said “probably six months.” She inadvertently pushed the time table ahead by 6 months. Traders were expecting the rate hike to occur in July and now are looking for April.
THURS & FRI’S ACTION: Stocks Perched Below Record Highs
Stocks rallied nicely on Thursday as investors digested Yellen’s comments and realized that it was not that big of a deal. It quickly became clear that the Fed will remain data dependent and they will continue to support Main Street and Wall Street, if the data weakens. Most recently Bernanke did a 180 when he hinted in May 2013 that the Fed will taper QE 3 in September. The Fed decided not to taper in September and held off to December because the data was not to their liking. What does all this mean for you? The Fed will continue to support Main St and Wall St and that is all that matters right now. In the past, I have even said I would not be surprised to see QE 4 down the road if the economy turns south and inflation remains at bay. On Friday stocks were dragged lower by the Nasdaq and biotech names.
MARKET OUTLOOK: STRONG UPTREND
The market took a small breather and was back up to new highs. It was encouraging to see the bulls quickly regain control as we head into month and quarter end. At this point, more damaging evidence is needed before the bull market breaths its last breathe. As always, keep your losses small and never argue with the tape.