For the week ending April 8, 2016, the stock market paused with both the Dow and the S&P 500 indexes down over -1.2 percent. The U.S. stock market posted loss over global economic worries. In other news: economists are expecting a weak first quarter; states are passing anti-LGBT laws; and, the IMF says negative rates are helpful. Below is a recap of the markets for each day of the week.
The markets were up down on Monday as leaked news about Saudi Arabia not cooperating with production freeze caused oil prices to drop. Oil dropped $1.17 to $35.46. The Dow dropped -0.3 percent to 17,737; the S&P 500 dropped -0.32 percent to 2,066.
On Tuesday, the markets dropped again despite mostly positive economic data. Oil rose $1.10 to $36.56. The Dow dropped -0.8 percent to 17,603; the S&P 500 dropped -1.01 percent to 2,045.
The markets rose on Wednesday when the FOMC left rates unchanged. Oil rose $1.17 to $37.73. The Dow rose 0.6 percent to 17,716; the S&P 500 rose 1.05 percent to 2,067.
The markets on Thursday were down on little economic news. Oil dropped -$0.20 to $37.53. The Dow was down -1.0 percent to 17,541; the S&P 500 dropped -1.20 percent to 2,042.
The markets Friday were up on a sharp rise in oil prices. Oil rose $2.13 to $39.66. The Dow was up fractionally to 17,564; the S&P 500 rose 0.28 percent to 2,048.
Stocks end the week down despite a late lift in oil. Oil prices rose sharply Friday helping stocks end the day in positive territory, but down for the week. Stocks throughout the week were pressured by growing concerns that central banks will not be able to stop the sluggishness in the global economy. This week ends the month-long rally in which stocks posted at 1 percent gain each week. For the markets to continue their rally, there need to be signs that corporate earnings are solid and guidance is positive. Next week starts a new round of earnings reports for the first quarter which is expected to show a contraction of -8.5 percent for S&P 500 companies.
First-quarter economic growth looks very bleak. Some economists expect first-quarter economic growth to be negligible, or even negative. After the larger than expected drop in wholesale inventories of -0.5 percent for February (-0.1 percent in January), economists shaved several tenths-of-a-point from their forecasts.
The North Carolina bill against the LGBT community is one of many in other states. Runner-up American Idol Clay Aiken, who is now and advocate for the LGBT community, voiced his criticism against the NC bill which requires transgender individuals to use bathrooms that match their original gender. Aiken called the bill “discriminatory”. Over 130 business leaders are asking the government to repeal the law. PayPal withdrew its plans to develop a $3.6 million global operations center in Charlotte. Despite support from the corporate and entertainment communities, Aiken doesn’t believe the law will be repealed.
The IMF says negative rates can have a positive impact. Senior experts from the International Monetary Fund (IMF) said in a paper that negative interest rates have boosted demand and stabilized prices, and represents a supplement to conventional monetary stimulus. Negative rates have encouraged investors to move from risk-free government securities to equities, property, and corporate bonds. Risks remain, with banks unable to reduce deposit rates experiencing a decline in profits, and with some banks lending to riskier borrows to maintain interest margins. However, as long as domestic demand are supported by negative interest rates. banks should benefit from a reduction in bad debts, higher quality credit, and higher demand for loans.
The bottom line: investors are seeking a safe haven as most European economic data disappointed. Declines in the dollar have boosted exports and could push the factory sector out of neutral. The dovish accommodative wait-and-see posture of the Fed should help move the economy forward after an expected poor showing in the first quarter.
The focus next week in the U.S. will be import & export prices, retail sales, and the PPI on Wednesday; consumer prices on Thursday; and, consumer sentiment and industrial production on Friday. Globally, the focus will be on key financial data being released by China. In addition, the focus will be on the following: UK (Bank of England Monetary Policy Announcement, Consumer Price Index, Producer Price Index); Eurozone (Industrial Production, Harmonized Index of Consumer Prices, Merchandise Trade); Germany (nothing); China (Consumer Price Index, Producer Price Index, Merchandise Trade, Gross Domestic Product, Industrial Production, Retail Sales); and Japan (Producer Price Index, Private Machine Orders).
Year-to-date the markets are mixed: Dow 0.9%; S&P500 0.2%; Nasdaq -4.0%.
The Markets for the past week were: DJIA down -1.2%; S&P500 down -1.2%; Nasdaq COMP down -2.2%.
Commodities (ETFs) for the past week were: Gold (GLD) up 1.28%; Silver (SLV) up 1.95%; Oil (OIH) up 1.35%; Dollar (UUP) down -0.45%; 30-year Bonds (TYX) down 6 basis points to 2.56%.
The VIX this past week (a measure of market sentiment and volatility) rose to 15.36%. This reflects the growing concern over the global economy.
To see what’s on the calendar for next week, go to the Econoday calendar.
The economic calendar for next week is light:
o Monday – nothing
o Tuesday – Treasury Budget
o Wednesday – Retail Sales, PPI-FD, EIA Petroleum Status Report, Beige Book
o Thursday –Jobless Claims, Consumer Price Index
o Friday – Empire State Mfg Survey, Industrial Production, Consumer Sentiment, Treasury International Capital
If you’re trading options, it is suggested trading Put Credit spreads for next week at 2.5 standard deviations or greater. Expect the price of the SPX to fall within 1959 and 2140 (2 standard deviations).
For more information about options, see the ‘Suggested Links’ below.