For the week ending April 15, 2016, the stock market continued to climb as both the Dow and the S&P 500 indexes were up over 1.5 percent. Wall Street still remains cautious, but the sentiment is now positive. In other news: China’s economy is benefiting from its stimulus plans; U.S. industrial production unexpectedly falls hard; and, CME traders put chances of a rate hike for April at zero percent. Below is a recap of the markets for each day of the week.
The markets were down fractionally on Monday on little economic news. Oil rose $0.70 to $40.36. The Dow dropped fractionally to 17,562; the S&P 500 dropped -0.27 percent to 2,042.
On Tuesday, the markets rose as oil prices jumped on a report that Russia and Saudi Arabia have agreed to a production freeze. Oil rose $1.28 to $41.64. The Dow rose 0.9 percent to 17,721; the S&P 500 rose 0.97 percent to 2,062.
The markets rose on Wednesday were up despite bad economic news which was offset by the delay in a Fed rate hike. Oil dropped -$0.09 to $41.55. The Dow rose 1.1 percent to 17,908; the S&P 500 rose 1.00 percent to 2,082.
The markets on Thursday were slightly up despite a weak retail sales report and softening consumer price data. Oil dropped -$0.10 to $41.45. The Dow was up 0.1 percent to 17,926; the S&P 500 rose fractionally to 2,083.
The markets Friday were down on a decline in consumer sentiment. Oil dropped -$1.05 to $40.40. The Dow was down -0.16 percent to 17,897; the S&P 500 dropped -0.10 percent to 2,081.
Wall Street remains cautiously positive on the stock market. After a bad first quarter, the U.S. stock market is now up for this year. The S&P 500, which was down over 10 percent in February, is now up 1.8 percent (the Dow is now up 2.7 percent). Pundits attribute the dramatic rebound to the following: a change in market sentiment from negative to positive; the weakness in the U.S. dollar; the more dovish posture of the Fed; and, the price of oil rising to a more stable $40 area. Whether these four factors will continue to boost the stock market is uncertain.
China’s economy expanded 6.7 percent in the first quarter. This falls in-line with expectations and indicates that the government’s stimulus plan appears to be working. Fixed asset investments (FAI) jumped 10.7 percent for the year, retail sales surged 10.5 percent, and industrial output rose 6.8 percent. Exports logged a sharp recovery, foreign exchange reserves posted their first monthly increase since November, and the purchasing managers index (PMI) rose above 50 (indicating growth) for the first time since July of last year. While China’s economy is showing improvement, it still faces a very large debt to GDP rate of 160 percent ($1.3 trillion).
U.S. industrial production fell sharply in March. Industrial output declined -0.6 percent (-0.1 percent expected) last month; it has now declined six out of the last seven months and is now down -2.2 percent for this year. The cause is the slowdown in the global economy and a robust dollar, both of which have eroded demand for U.S. manufactured goods. However, the surge in factory activity in New York State indicates that the worst may be over as the dollar’s rally appears to be waning and oil prices stabilizing around $40 per barrel.
CME traders place the chances of an April rate hike by the Fed at zero. On Thursday traders of CME’s monthly Fed futures indicates there is 0.36 percent chance for a rate hike in April (the reading comes from CME’s FedWatch tool). With inflation nearly non-existent and GDP expected to be flat this quarter, it is unlikely the Fed will raise rates this month. The latest indication from CME is that the highest probability for a rate hike will not occur until December (a 59 percent chance).
The bottom line: it’s a wait-and-see policy with the Fed to determine if the depreciation in the dollar will improve exports while providing an inflationary boost in imports. The one concern is the decline in the consumer sector due to a lack of wage growth.
The focus next week in the U.S. will be housing with the housing market index on Monday, housing starts on Tuesday, FHFA house price data on Thursday. Globally, the focus will be on the flash PMI reports. In addition, the focus will be on the following: UK (Labor Market Report, Retail Sales); Eurozone (Manufacturing, Services & Composite PMI; European Central Bank Monetary Policy Announcement); Germany (Manufacturing, Services & Composite PMI; ZEW Business Survey; Producer Price Index); China (nothing); and Japan (Merchandise Trade Balance, Manufacturing PMI).
Year-to-date the markets are mixed: Dow 2.7%; S&P500 1.8%; Nasdaq -1.4%.
The Markets for the past week were: DJIA up 1.8%; S&P500 up 1.6%; Nasdaq COMP up 2.8%.
Commodities (ETFs) for the past week were: Gold (GLD) down -0.43%; Silver (SLV) up 5.75%; Oil (OIH) up 3.31%; Dollar (UUP) up 0.49%; 30-year Bond (TYX) is flat at 2.56%.
The VIX this past week (a measure of market sentiment and volatility) declined to 13.62%. 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 – Housing Market Index
o Tuesday – Housing Starts
o Wednesday – Existing Home Sales, EIA Petroleum Status Report
o Thursday – Jobless Claims, Philadelphia Fed Business Outlook Survey
o Friday – PMI Manufacturing Index Flash
If you’re trading options, it is suggested trading Put Credit spreads for next week at 1.75 standard deviations or greater. Expect the price of the SPX to fall within 2002 and 2162 (2 standard deviations).
For more information about options, see the ‘Suggested Links’ below.