The market returned to its winning ways last week

BY  | FROM  | 2016-04-05 14:21

After taking a week off (and declining 0.67%), the market returned to its winning ways (up 1.81%), as demonstrated by its prior five weeks of gains (up 9.91%), as the market’s favorite candidate for person of the moment (the market is mostly too short-sighted to use person of the year) was Yellen with a loud and clear “no mas” for an increase in current interest rates.  Specifically, Chair Yellen’s Tuesday luncheon speech before the Economic Club of New York yielded a concerned chair, who wanted to take things slow.  While several other members of the FOMC had voiced a more aggressive role, as anyone in New York can tell you, “when the boss speaks…”  The result of a slower and more cautious Fed, which would continue low interest rates (a long addiction on Wall Street now), was a push up in equity prices, turning the year positive, as (older) traders returned to their memories of youth, singing the Beatles, “I get positive with a little help from my Fed.” 
Trading remained slow, except for Thursday’s quarter-end window dressing, which did give an indication of information technology being a favorite.  Notable was iPhone maker Apple (AAPL), which had “taken a licking, but kept on ticking”, as it added 4.1% for the week and is up 4.5% year-to-date, after being down 12% in February, rebounding 18%.  Also notable was Friday’s oil decline on the Saudi comment that it would not limit production unless everyone did (specifically Iran); oil closed the month at USD 36.63, after trading above USD 40, down from week’s USD 39.59, and down from the 2015 year-end USD 37.06.
In M&A, Japan’s Nippon Telegraph & Telephone (NTT; down 3.9% for the week) said it would buy Dell’s IT services unit for USD 3 billion.  Starwood Hotels & Resorts Worldwide (HOT; down 3.3% for the week) received a higher bid of USD 13.9 billion (all cash) from Chinese firm Anbang Insurance, outbidding Marriott International’s (MAR; down 2.2% for the week) USD 13.6 billion offer (cash and stock).  Anbang, however, withdrew its bid, with no reason revealed, leaving Marriott as the apparent winner.  Taiwanese electronics issue Foxconn Technology Group said it would take over Sharp for USD 3.5 billion, after a month of negotiations, which ended in a lower price than was initially discussed.
In economic news, in Fed Chair Yellen’s speech (and question and answer period), Yellen cited her concern over global growth, mentioning China, and the risk over commodity prices, citing oil; she expected an increase in core inflation, now at 1.7% and expected to be 2% in 2016-2017 (large time period); and she said the Fed would “proceed cautiously.”  Her dovish remarks, especially after recent hawkish statements from other FOMC members recently, caught the market by surprise—and the market liked it.  The takeaway was that there would be no interest rate increase in the first half of this year, and given the November 8, 2016 U.S. presidential election, two would appear doubtful.  The monthly employment report came in at 215,000, higher than the 205,000 expectation, as last month was slightly revised upward to 245,000, from the originally reported 242,000.  The unemployment rate, however, unexpectedly increased to 5.0% from the previous 4.9%, as the participation rate increased to 63.0% from last month’s 62.9% (and the prior month’s 62.7%), leading some to speculate that the higher participation rate added to the increased unemployment rate.  Average hourly wages came in up 0.3% to USD 25.43, when a lower 0.2% was expected (last month unexpectedly declined 0.1%), as the year-over-year increase was 2.3%.  The average work week remained unchanged at 34.5 hours.  In the U.S., the Trade report posted a USD 62.9 billion deficit, which was in line with the USD 62.5 billion expectation; Exports increased 1.6%, as Imports increased 1.4%.  Personal Income for February came in up 0.2%, when a 0.1% gain was expected, as Consumer Spending increased 0.1%, as expected (higher income than spending).  The February PCE came in down 0.1% also as expected, with the year-over-year gain at 1.0%; the Core PCE was up 0.1%, when a 0.2% gain was expected, as the year-over-year rate was up 1.7%.  The Pending Home Sales Index for February came in much higher than expected, up 3.5%, when a 1.5% gain was expected.  The ADP March Employment report came in at 200,000, when a slightly higher level of 203,000 was expected, as February was restated to 205,000 from the originally reported 214,000.  The ISM Manufacturing March report came in at 51.8, when a lower 50.5 was expected.  Construction Spending for February came in 0.5% lower, when a 0.2% gain was expected, as the year-over-year gain was 10.3%. 
Aerospace issue Boeing (BA; down 3.9% for the week) confirmed that it would lay off 4,000 workers.  Of note, Standard & Poor’s Ratings Services cut their outlook for China’s credit rating (currently “AA”), from “stable” to “negative,” as it cited economic and financial risks.  A U.S. federal judge ruled the government could not classify the insurance issue MetLife (MET; up 5.3% for the week) as “too big to fail” (and therefore be subject to additional oversight and reporting), as conglomerate General Electric (GE; up 2.6% for the week) filed the next day to be removed from the list. 

The market returned to its winning ways after taking last week off, with a 0.67% decline, after it had posted five consecutive weeks of gains.  The result is that six out of seven is good, as the cumulative seven weeks gain is 11.15%. For the week, the market closed at 2,072.78, up 1.81% for the week, as it moved into the black for the year-to-date, up 1.41%, as the gain also pushed the first quarter (which ended Thursday) into the black, up 0.77%. 

Breadth turned back to being positive, after last week’s brief negative bout.  For the week, 411 issues gained, up from last week’s 125 issues and more in line with the prior week’s 380.  Decliners fell to 91, down from last week’s 375 and the prior week’s 119.  One issue gained at least 10% (one did last week) and 34 others were up at least 5% (five were last week).  One issue declined at least 10% (four did so last week), as four issues lost at least 5% (27 did so in the prior week).  Year-to-date, breadth remained positive, as 312 issues were in the black, up from last week’s 278; 132 issues gained at least 10% (97 last week), compared with 191 down issues, off from last week’s 224, with 80 of them down at least 10% (the same as last week). 
Sector results followed the market, as nine of the ten groups posted gains for the week, compared to just three that did so last week.  Consumer issues did best as consumer staples added 2.63% for the week and consumer discretionary issues added 2.51%.  Year-to-date, however, the groups divided, as staples are up 6.16%, with discretionary up 1.70%. Information technology did the best, up 2.72% and is up 3.05% year-to-date, as Apple (AAPL) added 4.1% for the week, and is up 4.5% year-to-date.  Health care added 1.86%, but remains the worst year-to-date return, off 4.73%.  Both telecommunication services and utilities continued their winning ways, as they gained 0.83% and 1.74%, respectively, and they remain the best-performing sectors, up 14.87% and 14.96% year-to-date, respectively.  Energy did the worst, off 1.26%, as Friday’s 1.39% decline inspired by oil’s decline, pushed it into the red, but left it up 1.69% year-to-date. Trading volume increased slightly for the week, thanks to Thursday’s window dressing, from last week’s lowest weekly volume of the year; the weekly trading was 10% lower than the one-year average.  Measurable volatility (the high-over-low price variance) remained low but increased to 2.31% from last week’s 1.69% (the prior week was 2.35%); the one-year average is 3.01%.  There were no 1% daily moves for the week and there hasn’t been one since the 1.64% gain on March 11, 2016 and the 1.12% decline on March 6, 2016. The VIX continued down, closing at 13.10, down from last week’s 14.74 and the 2015 year-end level of 18.21.  Interest rates moved down for the week as Fed Chair Yellen’s comments resulted in the expectations of extended low rates (no interest rate increase soon), as the 10-year U.S. Treasury closed at 1.77%, up from last week’s 1.90% (and the prior week’s 1.88%).  The 30-year U.S. Treasury closed at 2.60%, a tick up from last week’s 2.67% (and 2.68% close the week before that).  Oil moved up (over USD 40), and then down, as it closed the week down after Saudi Aribia commented that it would not limit production unless all did so.  Oil closed at USD 36.63, slightly up from last week’s USD 39.59, and the prior week’s USD 39.35, and lower than the year-end 2015 USD 37.06.  Gold was slightly up, closing at USD 1,223.60, up from last week’s 1,218.70 (and the prior week’s USD 1,256.00).  The euro closed up, at 1.1392, up from last week’s 1.1179 (it closed the prior week at 1.1270).  The pound moved up, as it closed at 1.4228, off from last week’s 1.4115 and the prior week’s 1.4476.  The yen (quoted in yen-to-U.S. dollars, so higher is weaker) closed at 111.72, down from last week’s 112.83 (and 120.30 at year-end 2015).  The yuan closed at 6.4787, down from last week’s 6.5156 (and the prior week’s 6.4716).
Next week’s economic reports will center on Factory Orders, Wholesale Inventories, as well as Import and Export data.  Earnings will remain slow (with seven issues expected to report), as company and analyst’s guidance expected to get more attention—and trades. 
 

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