US Markets

Equities Weaken as Yields Dip

Trade Balance came in at -$51.1 billion, better than expected and down from December’s $59.9 billion.

Wednesday, March 27, 2019, 12:31 PM, EST

  • NASDAQ Composite -1.09% Dow -0.66% S&P 500 -0.84% Russell 2000 -1.24%
  • NASDAQ Advancers: 570 / Decliners: 1712
  • WTI Crude Oil -0.6%, Gold -0.3%Dollar Index +0.2%, Volumes +3%

Market Movers

  • Trade Balance came in at -$51.1 billion, better than expected and down from December’s $59.9 billion
  • US Investor Intelligence Poll shows bullish sentiment falls to 52% from 53.9%
  • MBA Mortgage Applications jumped 8.9% last week.  

Steve’s Commentary

Similar to yesterday there is little news or data to generate investor interest, so after a flat open equities are drifting lower with the four major indices well into the red.  Yesterday’s market remained positive through the session and all sectors posted gains, however market volumes were nearly 12% below average and the second lowest of the year so far.  That is not overly encouraging and suggests investors are still wary and are not directing new money into equities, and that dynamic seems in place for today.  The quarter is drawing to an end and that might partially explain the lack of direction.  Without tossing out specific stats and jinxing things, let’s just say that as it currently stands the quarter is shaping up to be one of the best in years.  That also is a reason for portfolio managers to sit tight for a few more days.

After setting a decade high in December, the trade deficit narrowed in January to $51.1 billion, well below estimates in the $57 billion range. Overall imports declined 2.6% and imports increased by 0.9%, and although gaps with Mexico, Canada and Europe narrowed it is the gap with China that everyone is watching, and it fell 12.3% to $33.2 billion. December’s data was inflated as companies imported as much as possible ahead of an expected tariff hike on January 1st that was ultimately postponed, and that of course contributed to the declines in January.  It might be February’s data that offers are more balanced view but that number doesn’t come out until April 17th. The spread between the 3-month bill and 10-year note widened overnight as treasury rates softened.  Investors are shifting money back toward fixed income, so much so that the yield on the 10-year note fell to 2.35% at one point, the lowest level since December 2017.  For now, anyway, it seems we have a rally in both equities and fixed income, but that is not likely to persist indefinitely.

An analyst at Credit Suisse did the research and notes that about eighteen months following an inversion of the 3-month over the 10-year, equities are usually down about 8%.  As for a rate cut, Dallas Fed President Kaplan sums it up best – “we are not there yet.”  Note that lower rates are not a US phenomenon, New Zealand’s central bank indicated its next move is a likely rate cut, the benchmark yield in Germany declined further below zero, and ECB President Mario Draghi said weak growth will require further adjustments to its forward guidance. On one hand lower rates reflect a slowing growth environment, but on the other hand lower rates can boost growth.  The housing market is the perfect example in that it has continually softened since late 2017, but now that rates have stabilized there are signs of growth.  In its earnings release yesterday KB Homes said “we are encouraged by improving market conditions” and this morning Lennar Homes says  orders were up 24% in the quarter ended February 28th.

This is showing up in the market with the S&P Homebuilding Index trading at its highest since mid-September.Tomorrow comes Pending Home Sales and Friday offers a glimpse into New Home Sales.  Most sectors are in the red at midday but Consumer Discretionary is the lone green spot with a 0.2% gain, and homebuilder stocks are among the best performers in that sector.  Utilities are down 0.8%, the most of any sector and Energy and Healthcare follow with a 0.6% declines.  Healthcare sector is still in the green for the week despite a 3% retreat in managed care stocks following a renewed push to eliminate Obamacare.  Speaking of managed care, WellCare Health Plan agreed to a $17.3 billion takeover by Centene; WellCare trades 9% higher while Centene falls 8.2%.  Over in commodities crude oil gave up earlier gains and WTI is fractionally lower following inventory builds, gold is down for a second day while the dollar index gains for a second day. 

Sector Recap 

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Brian’s Technical Take

 The major equity indices flirted with green territory in the early going but have since faded into the red.  The downside price action is being led by semiconductors which is noteworthy given the group is often looked to as a barometer for risk sentiment.  The semi’s have been the general of the multi-year bull market and even recently have been amongst the top performing industries throughout the Q1 rebound.  The Philadelphia SOX Index (SOX) is currently down 1.5% in today’s session which makes for a YTD gain of 19.2%.  Not bad!  After a 36% rebound off the December lows to last week’s high, the SOX has given back a relatively small 5.6% which may suggest a “healthier” correction is in store.  Two weeks ago the SOX gained a sizeable 5.6% and was then up another 4.2% going into the final session of last week.  However Friday’s widespread declines saw the SOX finish at the low end of the weekly range for a modest gain of 0.6%.  The weekly price pattern formed a classic bearish topping pattern (shooting star) which is to be respected given the prior steep uptrend.  So far the reversal is being confirmed with this week’s decline of 1.7%.  Given the dramatic +36% move off the December lows, a relatively modest 38.2% retracement measures down at the 1,303 level, or -5.5% from last sale.  This seems reasonable and coincides with the 200-day moving average, now 1,293.  If the general is headed lower, the troops are likely to follow. 

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Nasdaq's Market Intelligence Desk (MID) Team includes:

Charles Brown is Associate Vice President on The Market Intelligence Desk with over 20 years of equity capital markets experience. Charlie has extensive knowledge of equity trading on both floor and screen based marketplaces. Charlie assists with the management of The Market Intelligence Desk and works with Nasdaq listed companies providing them with insightful objective trading analysis.

Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.

Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.

Brian Joyce, CMT is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Before joining Nasdaq Brian spent 16 years as an institutional trader executing equity and options orders for both the buy side and sell side. He also provided trading ideas and wrote technical analysis commentary for an institutional research offering. Brian focuses on helping Nasdaq’s Financial, Healthcare and Transportation companies, among others, understand the trading in their stock. Brian is a Chartered Market Technician (CMT).

Michael Sokoll, CFA is Associate Vice President on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information. 

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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