The S&P 500 posted a slight decline for the shortened week

BY  | FROM  | 2016-03-28 15:18

Tragedy struck in Brussels this week via terrorism, as the market continued on with little impact, which in itself is a sad commentary on the frequency and expectation of such events.  Front page attention quickly centered on any future steps needed to prevent further events, and the social trade off of privacy versus security. 

In the market, M&A picked up, as economic reports continued to be mostly positive, but mixed.  The S&P 500 posted a slight decline for the shortened week on extremely low trading volume, ending its five-week winning streak.  Trading was expected to pick up next week, with Thursday’s month-end potentially experiencing some quarter-end window dressing.  At this point, March is up a very pleasing 5.37% - the best since a first quarter rebound of 8.54% in 2009.  Year-to-date performance returned to the red, off 0.39% (up 0.14% with dividends), and, as has been the recent history, will most likely come down to the last trading day of the quarter.

In M&A, paint maker Sherwin-Williams (SHW; down 2.5% for the week) said it would buy competitor Valspar (VAL; up 26.3% for the week) for USD 9.3 billion.  Hotel issue Marriott (MAR; off 6.2% for the week) issued a counter offer of USD 13.6 billion (cash and stock) for Starwood (HOT; up 1.9% for the week), outbidding Anbang Insurance Group (all cash USD 13.2 billion).  U.S. data and information issue IHS (IHS; up 8.0% for the week) and U.K.-based Markit Limited (MRKT; up 16.3% for the week) announced they would merge via an inversion deal, with the resulting company headquartered in London.  In economic news, the People’s Bank of China governor warned that corporate debt had risen too high (as a percentage of Chinese debt).  Hungary’s central bank cut its overnight interest rates by 0.15% to negative 0.05%. In the U.S., the February Existing Home Sales report came in down 7.1%, at an annual rate of 5.08 million (5.305 million was expected), down from last month’s 5.47 million rate; the year-over-year change was up 2.2%.  The FHFA Home Price Index for January came in up 0.5%, when a 0.6% gain was expected, as last month was restated upward to 0.5% from the originally reported 0.4%; the year-over-year gain was 6.0%. 

The New Home Sales report for February came in at an annual rate of 512,000, a slight tick up from the 510,000 that was expected, as the previous month was restated up to 502,000 from the 494,000 originally reported. The February Durable Goods orders report posted a 2.9% decline, when a 3.0% decline was expected, as the year-over-year rate was 1.8%.  The ex-transportation component came in at -1.0%, lower than the expected -0.2%, as the year-over-year rate was 0.5%. The third and final fourth quarter 2015 GDP report came in better than expected at an annualized 1.4% (1.0% was expected), as the report showed stronger than expected consumer spending, but weaker corporate profits. In issues, Valeant Pharmaceuticals International’s (VRX; up 15.2% for the week) CEO Michael Pearson said he would resign. 

The company said it would search for a new CEO, named investor William Ackman to the board of directors, and said it would restate its financials; the issue closed at USD 31.09, 88% off its August 2015 USD 263.81 price.  Hedge fund Starboard initiated a proxy fight to unseat internet search and advertising issue Yahoo’s (YHOO; off 0.9% for the week) board.  Fast-food restaurant owner Yum Brands (YUM) climbed 1.3% for the week, as the company was reportedly in talks with private equity firms to sell part of its Chinese operations.  A U.S. Federal Judge criticized the U.S. Federal Trade Commission for its actions in attempting to block the merger of office supply firms Staples (SPLS; up 8.9% for the week) and Office Depot (ODP; up 20.0% for the week). In layoffs, Credit Suisse increased its cost-cutting plan and announced it will reduce its work force by 2,000.  Of note, U.S. President Obama became the first U.S. president to visit Cuba in 88 years. 

Relations continue to improve with U.S. companies looking to do business in the island country.  Brazilian politics moved up on the radar, as the possibility of President Dilma Rousseff’s impeachment was seen as a potential boost for Brazil’s economy.  Terrorists set off an explosion at the Brussels International Airport and a metro station near the EU headquarters, killing dozens of people, and reigniting global concerns over security and the role of governments in protecting their citizens. The market posted its first weekly decline, after five-weeks of gains (cumulatively 9.91%), in a shortened week, which was marked by the lowest trading volume of the year. The market closed at 2,035.94, down 0.47% for the week, as it slipped back into the red year-to-date, off 0.39%.  Breadth turned strongly negative, but the declines were not significant, with the breadth painting a worse picture than the actual results.

For the week, 125 issues gained, down from last week’s 380 issues and the prior week’s 354.  Decliners increased to 375, up from last week’s 119 and the prior week’s 149. One issue gained at least 10% (six did last week) and five others were up at least 5% (44 were last week).  Four issues declined at least 10% (three did so last week), and another 27 issues lost at least 5% (six did so in the prior week).  Year-to-date, breadth remained positive, as 278 issues were in the black, up from last week’s 295.  97 issues gained at least 10% (114 were last week), compared with 224 down issues, off from last week’s 208, with 80 of them down at least 10% (a decline from the 70 last week).  Three of the ten sectors declined for the week, down from nine last week, and all ten in each of the prior three weeks.  Energy did the worst, off 2.43%, as oil dipped slightly; given the terroristic attacks, energy and oil’s decline was a surprise to most. 

Year-to-date, energy remains an outperformer, up 2.99%.  Financials mostly declined, as the time schedule for the Fed increasing interest rates was extended; the sector fell 1.87% for the week, and is off 6.39% year-to-date.  Health care did the best, as it rebounded 0.62% for the week, but remains off 6.47% year-to-date, the worst sector in the index. Telecommunications Services added 0.54% and Utilities added 0.55%, as they continued to be the best performing sectors year-to-date, up 13.93% and up 12.99%, respectively. Trading volume decreased 22% for the week, the lowest weekly volume of the year, and 10% lower than the one-year average. Measurable volatility (the high-over-low price variance) noticeably decreased for the second consecutive week, to 1.69% from last week’s to 2.35%; the 1-year average is 3.04%.

There were no 1% daily moves for the shortened week (there were none last week either), as the daily changes ranged from a 0.10% gain on Monday down to a 0.64% decline on Wednesday. The VIX remained low, even as it increased, closing at 14.74, up from last week’s 14.02 (which was the lowest since August 2015), and down from the prior week’s 16.50.  Interest rates moved down slightly for the week, as the 10-year U.S. Treasury closed at 1.90%, up from last week’s 1.88% (and the prior week’s 1.98%).  The 30-year U.S. Treasury closed at 2.67%, a tick up from last week’s 2.68% (and 2.76% close the week before that).  Oil moved up and then down, as it closed the week at USD 39.59, slightly up from last week’s USD 39.35, and the prior week’s USD 38.49.  Gold declined, even as security concerns dominated the week, closing at USD 1,218.70, up from last week’s 1,256.00 (and the prior week’s USD 1,251.10).  The euro closed up, at 1.1179, down from last week’s 1.1270 (it closed the prior week at 1.1151). 

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