For the week ending March 25, 2016, the stock market took a breather after five straight weeks of gains with the major indexes now mixed year-to-date. The U.S. stock market posted its first weekly loss on very light trading Thursday as oil prices fell. In other news: job gains are keeping our economy afloat; the BOJ board is debating rolling back negative interest rates; and, a viewpoint on how to how to stop stupidity in government. Below is a recap of the markets for each day of the week.
The markets were up slightly on Monday despite talk of a rate hike in April or June and a disappointing decline in existing home sales. Oil rose $0.49 to $41.62. The Dow rose 0.1 percent to 17,623; the S&P 500 rose 0.1 percent to 2,052.
On Tuesday, the markets were down in response to an attack by terrorists in Brussels. Oil dropped -$0.40 to $41.22. The Dow dropped -0.2 percent to 17,583; the S&P 500 fell -0.09 to 2,050.
The markets dropped further on Wednesday on little economic news. Oil dropped -$1.46 to $39.76. The Dow dropped -0.5 percent to 17,502; the S&P 500 dropped -0.64 percent to 2,037.
The markets on Thursday were mixed on a very weak durable goods report for February. Oil dropped -$0.17 at $39.59. The Dow was up fractionally to 17,515; the S&P 500 dropped fractionally to 2,036.
The markets Friday were closed for Good Friday.
Falling oil prices end the five-week rally in the stock market. The large drop in oil prices Wednesday led the markets down for the week. In addition, public comments by several Fed bank presidents suggesting rate hikes might not slow this year (with the next hike due in April or June) negatively impacted investor expectations. European markets posted sizable losses for the week: the German DAX dropped -1.0 percent; France’s CAC-40 dropped -3.0 percent; and, Britain’s FTSE 100 dropped -1.3 percent. In Asia: Hong Kong’s Hang Seng fell -1.3 percent; Sydney’s S&P ASX 200 fell -1.1 percent; Seoul’s Kospi fell -0.5 percent; and, Tokyo’s Nikkei 225 fell -0.6 percent.
Gains in American jobs is keeping the economy from faltering. Economists say that as long as the U.S. adds more than 200,000-plus jobs per month which offsets companies cutting back on investments, the danger of a recession is remote. America has average 213,000 new jobs per month for the past four years. The surge in new jobs has provided the foundation for slow stable growth while other nations have been struggling economically. Despite declining corporate profits (down -3.2 percent, the first decline since 2008), consumers are spending enough to encourage companies to increase hiring. Consumer spending is a big plus because of gains in jobs and income, and it’s helped by declining oil prices.
The board at the Bank of Japan (BOJ) is debating rolling back negative interest rates. A summary of the March 14-15 rate review by the board shows policymakers are in a heated debate regarding the efficacy their negative interest rate policy adopted last January. A rollback will not occur anytime soon as this will lead to market confusion and erode confidence in the BOJ. Most of the nine board members agree that they should wait to see the long-term impact of negative rates before implementing a rollback. Currently, the policy has failed to boost stock prices or impede the rise in the yen.
Can government stupidity be stopped? It is clear that most Americans agree that our government does a lot of stupid things. According to Andrew Tisch, co-chairman of Loews and co-founder of No Labels (a national group of Democrats, Republicans and Independents committed to problem-solving through a change in politics), a person empowered by the executive branch and Congress should be appointed czar to eliminate mindless rules and regulations. Needless regulations have ballooned nearly three-fold since 1975 and is estimated to cost the economy nearly $2 trillion annually. The cost to small businesses is estimated at $10,000 per employee (36 percent higher than the cost to large corporations). While some regulations are necessary (the benefits far outweigh the costs in health safety and security), others are simply solutions in search of a problem. As a result, America is fast becoming a compliance economy rather than a competitive economy. The solution: an appointed czar with a staff from all political parties that can identify needless regulations and ask Congress for an up or down vote to eliminate them. An interesting idea.
The bottom line: the factory sector and housing are barely contributing, but the consumer is still the strong and moving the economy forward.
The focus next week in the U.S. will be personal income and pending home sales on Monday, Case-Shiller home prices on Tuesday, and construction spending and the employment report on Friday. Globally, the focus will be on the very important Tankan survey. In addition, the focus will be on the following: UK (Gross Domestic Product, Manufacturing PMI); Eurozone (EC Business & Consumer Sentiment, Harmonized Index of Consumer Prices, Manufacturing PMI); Germany (Retail Sales, Unemployment, Manufacturing PMI); China (Manufacturing PMI, CFLP Manufacturing PMI); and Japan (Household Spending, Unemployment, Retail Sales, Industrial Production, Tankan Survey, Manufacturing PMI).
Year-to-date the markets are mixed: Dow 0.5%; S&P500 -0.4%; Nasdaq -4.7%.
The Markets for the past week were: DJIA down -0.5%; S&P500 down -0.7%; Nasdaq COMP down -0.5%.
Commodities (ETFs) for the past week were: Gold (GLD) down -2.90%; Silver (SLV) down -3.99%; Oil (OIH) down -3.17%; Dollar (UUP) up 1.18%; 30-year Bonds (TYX) remained flat at 2.67%.
The VIX this past week (a measure of market sentiment and volatility) rose slightly to 14.74%. This reflects the drop in oil and stock prices.
To see what’s on the calendar for next week, go to the Econoday calendar.
The economic calendar for next week is full:
o Monday – International Trade in Goods, Person Income and Outlays, Pending Home Sales Index
o Tuesday – S&P Case-Shiller HPI, Consumer Confidence, Janet Yellen Speaks
o Wednesday – EIA Petroleum Status Report, ADP Employment Report
o Thursday –Jobless Claims, Chicago PMI
o Friday – Motor Vehicle Sales, Employment Situation, PMI Manufacturing Index, ISM Mfg Index, Construction Spending
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 1942 and 2134 (2 standard deviations).
For more information about options, see the ‘Suggested Links’ below.