Thursday, March 28, 2019, 12:31 PM, EST
- NASDAQ Composite -0.12% Dow -0.06% S&P 500 -0.10% Russell 2000 +0.03%
- NASDAQ Advancers: 1113 / Decliners: 1181
- WTI Crude Oil -0.6%, Gold -1.6%, Dollar Index +0.4%, Volumes -6%
- Fourth Quarter GDP revised down 0.1% to 2.2%
- Personal Consumption revised down 0.1% to 2.5%
- GDP Price Index revised down 0.1% to 1.7%
- Core PCE revised up 0.1% to 1.8%
- Initial Jobless Claims down 5k to 211K
- Continuing Claims rise 13k to 1.756M
- February Pending Home Sales -1%
- Kansas City Fed Manufacturing Activity rose from 1 to 10
It’s Opening Day for baseball fans and the markets opened with fields of green, but investors are calling foul as the early gains evaporate and the market slowing sinks slightly into the red. Each day this week the market has changed direction at about 10:30 AM ET, and that highlights the lack of investor conviction and the likelihood that algorithms are in control. Bonds were the at the top of the headlines early in the week but investor attention is turning elsewhere, and bonds revert to being only part of the larger narrative. The bond rally continues just at a less frenzied pace than in recent days. The 3M/10Y inversion persist for a fifth day, but it too has softened from yesterday, and across the pond the German bunds have also stabilized. Elsewhere, U.S.-China trade talks are underway with a U.S. delegation arriving in China just hours ago. Reuters reports that progress continues but intellectual property rights and enforcement remain problematic. Separately, Reuters reports China is preparing to expand access to foreign banks, securities and insurance companies, and that will play into the trade negotiation.
Yesterday’s market closed modestly lower with only the Industrial sector showing a slight gain, and volumes picked up from Tuesday but still came in about 5% below average. The low volumes indicate buyers are holding back, but so are the sellers. One analyst at BMO says the lack of selling could give an all clear signal to the bulls, so we shall see. Today’s volumes are running about 6% below yesterday, so that again highlight the lack of conviction. On the economic front, we got a third and final look at last quarter’s GDP, which at 2.2% was a tad below the expected 2.3%. Personal consumption (aka consumer spending) also missed by 0.1% to come in at 2.5%, and it’s the same with the GDP Price Index coming in light at 1.7%. Core Personal Consumption however rose 0.1% to 1.8% for the quarter. Overall the data was a little softer than initially thought but at the same time there were no surprises. Looking ahead, analysts polled by Bloomberg are expecting first quarter 2019 GDP will slow to 1.5%.
It’s Thursday so we get a look at unemployment claims, and they fell 5K to a two-month low of 211k. Despite all the angst over a slowing economy, the employment market is holding up quite well. Pending home sales in February underwhelmed by falling 1% versus an expected decline of 0.5%, and YoY sales fell 5% instead of the expected -3%. Sales in the Northeast and Midwest fell but the South and West saw gains. However the declines are not too alarming since they follow an unusually strong January. Looking at the national average for a 30-year fixed mortgage, rates were fractionally lower in February compared to January but not enough to make a significant difference to an average buyer. It is not until mid-March that mortgage rates declined in earnest, so it will take a little time below that shows in the data.
One of the interesting aspects of working on the MID is all the various data that comes our way. Just in the past few days I’ve read about a Federal Reserve paper that says instead of looking at yield curves as a rate cut and recession predictor, look at the near-term forward spread – or the difference between the implied Treasury bill rate six quarters from now and the current 3-month yield. This analysis indicates the market has already priced in a rate cut sometime in the next year or so as the economy slows, and this measure correctly predicted the rate cuts in 1998, early 2000s and 2008. I also read about the ‘Fed model’ that has been accurate since 1962. It looks at yield on the 10-year treasury versus the earnings return on the S&P 500.
The earnings return on the S&P is 3% higher than the 10-year yield, and according to this model any reading of 3% or more virtually guarantees equities go higher over the next 12 months. If you put stock in these models then rates are headed lower and stocks are headed higher, so party on Garth! The sectors are mixed with leading decliners being Utilities with a 0.7% retreat and Communications off 0.8%. Verizon is down nearly 3% today after hitting a 10-year high yesterday, and that is weighing on the sector. The Materials sector is the top performer with an 0.3% gain. WTI crude oil is off about 0.7% but off session lows, gold is down nearly 1.5% for its largest decline since February 21st, the dollar index is up 0.4%, and the British pound falls about 0.8% as the Brexit saga continues.
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Brian’s Technical Take
It’s opening day for Major League Baseball aaaaaand the Mets season is over. Just kidding! As a lifelong Mets fan I have learned you have to poke fun at the team if you want to make it through most seasons. This applies more so with my New York Knicks who have the worst NBA record since 2001 and are the reason the league now prohibits teams from trading back to back #1 draft picks. At least I am not a Jets fan.
For sports in general, this is a glorious time of year. Along with the start of America’s pastime, March Madness resumes tonight with the start of round 3 and the Sweet 16. The NBA and NHL playoffs are just around the corner, and the fanatics have the draft lotteries to look forward to starting with the NFL in April. Not that I would know anything about this, but many of those fanatics will often partake in an adult beverage or two during the games. Tis the season.
The Russell 3000 Brewers and Distillers index was not immune to last year’s market turbulence with a high to low decline of 27%. It eventually found support at the lows of Q4’16 before rally 12% into early February. It has now spent seven consecutive weeks consolidating sideways over which time establishing clearly defined resistance at the 3,870 – 3,900 range. There is a recent trend of rising support which supports the case for an upside breakout, however overhead supply is likely to increase at the 4,000 level, +3.5% from last sale. The fast declining 40-week moving average (sma), synonymous with the 200-day sma, is quickly closing in towards that same level which should only embolden sellers.
And price still remains below the 200-week sma which many technicians look to as a guide about the secular trend. Thus while there may be some short term gratification for new longs anticipating an upside breakout, from a technical perspective the reward may not be worth the risk at this time. The index saw a phenomenal 330% gain from the 2011 lows to 2018 highs, and may need more time to resume the prior uptrend.
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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.