The market may be reaching its bottom

BY  | FROM  | 2016-02-24 16:23

It was the week that finally could, as investors spent the Monday U.S. holiday “psyching” up from last Friday’s 1.95% gain, bidding a pair of 1.65% gains on Tuesday and Wednesday, which made for a three-day run of 1% plus gains—an event not seen since October 2013. 
Not that the Street lives for the moment, but it was company charge cards that paid the bar tab that night, as the toast was to the “mini rally.”  Unfortunately, the week wasn’t over, as old-fashion, short-term greed appeared to be the reason the market couldn’t extend the day count to four (an event not seen since October 11, 1982, when the market closed at 134.47 – it closed today at 1,917.78).  For most, not reaching four-in-a-row was viewed as acceptable, given the mild 0.47% decline (after the gains).
There was background news for the week, as volatility and several games of hide-and-seek continued.  Oil, which closed the week slightly up (at USD 29.72 from last week’s 29.00) saw USD 31 plus, as a Saudi-Russian freeze was sought.  However, while both Iran and Iraq agreed with the goal to increase prices, their specific freeze levels didn’t appear to fit their purse (or income needs).  In Europe it was “can I have some more,” which was fed on the seek side, with many still recalling that the last sighting of stimulus resulted in more hide than seek (and a spike in the euro—which currency traders are still crying over).  IPOs remained on the hiding side, as M&A started to come out of its hiding spot. 
The takeaway, however, for the shortened week appeared to be that the market was back to basics, as compared with the macro-global events.  At this point, those basics are mixed, as housing builds up, but earnings build down, with more interest rates having red on their faces.
In M&A, electronic security services issue ADT (ADT) added 48.9% for the week, as Apollo Global said it would buy the issue for USD 6.9 billion.  Business and computer systems maker International Business Machinery (IBM; up 9.9% for the week) said it would buy health data issue Truven Haven Analytics for USD 2.6 billion.
In economic news, the ECB said it was ready to boost its economic stimulus in March—if need be.  January housing starts came in down 3.8%, as permits declined 0.2%.  The PPI for January came in up 0.1%, when a 0.2% decline was expected, with the ex-food and energy component up 0.4%.  Industrial Production for January posted a 0.9% gain, when a lower 0.4% gain was expected, as Capacity Utilization increased to 77.1% from December’s 76.4%.  The fourth quarter 2015 e-commerce sales report showed a 2.1% gain, which was down from the third quarter 3.8% rate but significantly better than the flat overall fourth quarter retail reports.  The January CPI year-over-year rate came in at 1.4%, as the Core CPI (ex-food and energy) came in up 2.2%, coming closer to the Fed’s desired inflation rate. The IMF, as expected, approved Christine Lagarde for a second five-year term. In the background, Bank of America (BAC) said the market was pricing in a chance of another recession at 50% in the next one-year period; the bank said it felt the chance was 25%.
In layoffs, Canadian aircraft transportation equipment maker Bombardier said it would cut 7,000 workers.  American Express (AXP; up 3.9% for the week) said it would cut costs an additional USD 1 billion, with some expecting workforce reductions. The market volatility continued, but it was on the upside, as the combined Tuesday and Wednesday gains of 3.33% (4.85% if you include last Friday) pleased everyone but the short-sellers (who no one liked anyway). 
The market closed the week at 1,917.78, up 2.84% for the week, as it posted its best week since November.  The early week gains were supported by reallocations, as safety positions taken over the past few weeks were reversed, and there were also some signs of bargain hunting.  Thursday’s slight decline and Friday’s flat market at the end of the week was generally accepted as a reaction to the strong three-day “mini rally.” 
While many are hopeful that the market has turned the corner, year-to-date the market remains off 6.17%, with financials off 12.20% (the worst of any sector), as lower, not higher, interest rates are expected. Breadth turned strongly positive for the week, as the rebound from the bottom saw 459 issues gain, up from last week’s 170 issues.  Decliners fell to 45 issues from the prior week’s 330.  Twenty-five issues gained at least 10% (two did last week), and 97 others were up at least 5% (24 were last week).  Four issue declined at least 10% (24 did so last week), and another six issues lost at least 5% (61 in the prior week).  Year-to-date, breadth remained negative (as did the index), as 149 issues were up, with 24 up 10%, compared with 353 that were in the red, and 173 of them that were off by at least 10%. 
The broad market gains were reflected in the sector performance, as all 10 groups gained for the shortened week, compared with last week, when nine were down.  For the week, consumer discretionary did the best, up 4.27%, as it remained down 7.10% year-to-date. Information technology added 3.80%, as it rebounded from its recent declines (as did many issues and sectors), but it remained underwater year-to-date, with a 7.09% decline.  Financials added 2.53 for the week, countering its prior week’s 2.36% fall, but it remained down 12.20% year-to-date, the worst of any sector.  Telecommunications did the worst for the week, as it added 1.07%, as it was up 7.50% year-to-date, the best of any sector. 
Trading volume declined 8.3% from the prior week but remained 24.3% higher than the one-year average.  Measurable volatility (the high-over-low price variance) decreased to 3.17% (the one-year average is 2.92%), down from last week’s 3.95% and the prior week’s 4.00%.  The week posted two 1% moves, both up 1.65% (Tuesday and Wednesday), compared with last week’s three 1% day moves (one up and two down). The VIX closed at 20.53, down from last week’s 25.40, as markets moved higher.  Interest rates increased but stayed low, as the 10-year U.S. Treasury closed at 1.75%, a tick up from last week’s 1.74% but down from the 2.27% seen at year-end 2015.  The 30-year U.S. Treasury closed at 2.61%, a tick up from last week’s 2.60%. Oil was still volatile and moved up for the week, closing at USD 29.72, compared with last week’s USD 29.00, as the hope for a cap on supply appeared to be slim.  Gold moved down and then up, as it closed little changed, at USD 1,226.60, down from last week’s USD 1,233.20.  The U.S. dollar was weaker, as it reacted to the growing belief that the Fed would not increase interest rates soon, while the euro closed at 1.1131, down from last week’s 1.1256.  The pound closed at 1.4405, down from last week’s 1.4502, and the yen (quoted in yen-to-U.S. dollar, so higher is weaker) was at 112.62 (120.30 year-end 2015), down from last week’s 113.25.  The yuan closed at 6.5225, down from last week’s 6.5733. 
For the week, the Nikkei was up 6.79% but off 16.11 year-to-date, as the Shanghai was up 3.49% (from its pre-holiday close) and was up 19.19% year-to-date. S&P Dow Jones Indices announced that it would add oil and gas explorer Concho Resources (CXO) to the S&P 500 after the close on February 19, 2016, removing Plum Creek Timber (PCL), which is being acquired by S&P 500 issue Weyerhaeuser (WY). The hope is that next week will continue to gain back some of the losses, supported by fundamental data. 
Analysts’ evaluations and changes are expected to continue next week, along with releases from 49 issues, representing 5.8% of the index.  Highlights will include Tuesday’s department store Macy’s (M) and home improvement and materials issue Home Depot (HD), with its competitor Lowe’s (LOW) reporting on Wednesday.  Thursday will bring electronics store Best Buy (BBY), with beverage maker Monster Beverage (MNST) reporting after the close. Next week’s economic reports should center on housing, as Tuesday will brings the S&P/Case-Shiller Home Price Index and the Existing Home Sales report, with Wednesday bringing the New Home Sales report.  The single highlight is expected to be Friday’s second report on fourth quarter 2015 GDP.

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