For the week ending April 22, 2016, the stock market continued to climb, but more slowly, as both the Dow and the S&P 500 indexes were up around 0.5 percent. The labor market remains strong and hints at improved corporate earnings in the remainder of this year. In other news: Japan suffers another earthquake that has global ramifications; the Doha meeting was disappointing for oil producers; and, the ECB fails to offer any new insights. Below is a recap of the markets for each day of the week.
The markets were up on Monday boosted by energy shares. Oil rose $1.07 to $41.47. The Dow rose 0.6 percent to 18,004; the S&P 500 rose 0.65 percent to 2,094.
On Tuesday, the markets rose as oil prices gained due to a labor strike in Kuwait. Oil rose $0.95 to $42.42. The Dow rose 0.3 percent to 18,053; the S&P 500 rose 0.31 percent to 2,101.
The markets on Wednesday were up on strength in energy shares. Oil rose $1.55 to $43.97. The Dow rose 0.2 percent to 18,272; the S&P 500 rose 0.08 percent to 2,102.
The markets on Thursday were down on mixed economic news: solid strength in jobless claims; manufacturing flat; and weak FHFA data, The Dow dropped -0.6 percent to 17,982; the S&P 500 dropped -0.52 percent to 2,091.
The markets Friday were down on a decline in consumer sentiment. Oil rose $0.32 to $43.75. The Dow was up fractionally to 18,004; the S&P 500 rose fractionally to 2,092.
U.S. stocks have just become the second-longest bull run. As the rally struggles to make another gain this week on weak corporate profits (down 7 percent for the first quarter), it has just surpassed the postwar boom as the second-longest sustained period of rising equity prices (the longest sustained rally occurred during the period of 1987 to 2000). Since the low point in March 2009, the market has rallied 2,608 days (on Friday), surpassing the second-longest bull run of June 1949 to August 1956 of 2,607 days. To become the longest bull market, the stock market will have to avoid a bear market until June 2021.
Japan’s earthquake last weekend rattles its vulnerable supply chain. Automaker Toyota, for example, is shutting 26 assembly lines and curtailing output due to production halts by suppliers. This shows how a lean manufacturing system (a model of efficiency) is impacted by disasters. The 6.5 magnitude earthquake on Thursday, followed by a 7.3 quake on Saturday, hit the southern Japanese island of Kyushu (which hasn’t experienced an earthquake in over 125 years). It is estimated that Toyota’s shutdown will last two weeks or longer. This latest earthquake left more than 40 dead.
The Doha, Qatar meeting of all producers failed to reach a production freeze agreement. On the news, oil prices plunged; but after several hours prices began to rise again surpassing the loss. Why? Experts pointed to two primary reasons: first, a drop in oil production from Kuwait (due to a strike) has placed a floor under prices; and second, the long-term outlook from the International Energy Commission (EIA) is a tightening market by the end of this year which will support higher prices. Add to this the oil production issues of Nigeria and the decline in oil production in this country, and the Doha meeting ended up being just a distraction.
The ECB fails to discuss further stimulus plans after leaving its monetary policy unchanged. With inflation remaining low, speculation has risen that the ECB would discuss further injections of money (referred to as “helicopter money”). Instead, bank Chairman Mario Draghi focused on the Brexit (England leaving the EU) saying it was unlikely to endanger the EU’s recovery. The ECB has been under criticism for its ultra-loose monetary policy (specifically from Germany) and Draghi stated that such criticism could undermine the effectiveness of its policy which could lead (ironically) to further monetary injections.
The bottom line: the labor market remains strong, but it has yet to result in wage increases which would help raise inflation. The factory sector remains flat, and housing data is lacking punch (which should have occurred with the warm weather). It is unlikely that the Fed will increase rates in the near future with the economy in question, and this is the expectation for the FOMC statement on Wednesday.
The focus next week in the U.S. will be on first-quarter GDP results (expectations are for a 0.7 percent rise) and the FOMC statement. Globally, the focus will be on first quarter growth in the U.S., UK, France and the Eurozone. In addition, the focus will be on the following: UK (Gross Domestic Product); Eurozone (EC Consumer and Business Survey, Gross Domestic Product, Harmonized Index of Consumer Prices); Germany (Retail Sales, Unemployment); China (nothing); and Japan (Unemployment, Industrial Production, Household Spending, Consumer Price Index, Retail Sales).
Year-to-date the markets are mixed: Dow 3.3%; S&P500 2.3%; Nasdaq -2.0%.
The Markets for the past week were: DJIA up 0.6%; S&P500 up 0.5%; Nasdaq COMP down -0.6%.
Commodities (ETFs) for the past week were: Gold (GLD) down -0.03%; Silver (SLV) up 4.33%; Oil (OIH) up 8.15%; Dollar (UUP) up 0.45%; 30-year Bond (TYX) rose 14 basis points to 2.70%.
The VIX this past week (a measure of market sentiment and volatility) declined to 13.22%. This reflects the markets moving to higher levels.
To see what’s on the calendar for next week, go to the Econoday calendar.
The economic calendar for next week is moderate:
o Monday – New Home Sales, Dallas Fed Mfg Survey
o Tuesday – Durable Goods Orders, S&P Case-Shiller HPI, Consumer Confidence
o Wednesday – International Trade in Goods, Pending Home Sales Index, EIA Petroleum Status Report, FOMC Meeting Announcement
o Thursday – Jobless Claims, GDP
o Friday – Personal Income and Outlays, Employment Cost Index, Chicago PMI, Consumer Sentiment
If you’re trading options, it is suggested trading Put Credit spreads for next week at 2.0 standard deviations or greater. Expect the price of the SPX to fall within 2016 and 2170 (2 standard deviations).
For more information about options, see the ‘Suggested Links’ below.