I’ll take it.
Markets moved sideways yesterday posting uneven results as volume contracted. Let’s face it, hardly a day’s performance that emboldens investors to increase equity exposure on the face of it, but rather encouraging when one takes a step back to gain some perspective. As a strategist that was bearish at the outset of the year and that has been cautiously optimistic over the past four weeks, yesterday’s action in equity markets was actually more than simply welcomed, it was a necessary ingredient for any continuation of our rebound off the February 11th lows.
Given the fact that over the preceding two weeks markets posted consecutive gains, the first incidence of such in 2016, and given the fact that on Tuesday of this week the Dow gained 2.11%, the S&P 500 gained 2.39% and the Nasdaq gained 2.89%, yesterday’s mediocre performance allowed investors to take a breather and digest recent gains. Markets don’t move in a single direction, as we all know, so given the sharp trade higher we witnessed on Tuesday, after two successive weekly gains, the fact that yesterday was a mixed day and not a reset lower was impressive.
After another weak start yesterday, US equity markets again rallied into the bell. I spoke to the emergence of that intraday trading pattern in an article for Reuters http://reut.rs/1T9sGUO on Friday (posted here Monday). The S&P 500 gained 0.40%, the Dow Industrials gained 0.20% and the NASDAQ posted a gain of 0.29%. Volume on the NYSE (- 3.39%) and Nasdaq (-21.67%) both slipped as investors stepped away from the recent run-up for fear of being pulled into a rally that appears to have few believers. The lack of overwhelmingly constructive conviction on the part of investors coupled with compressed valuations and shifting thematic crosscurrents, that have held equities lower, have all fueled unexpected price appreciation.
Quietly, shorts are hedging their bets, covering some exposure by buying back shares while long investors are quietly averaging down on positions. That is not to say we are headed sharply higher. I am only suggesting that there is a bid in the market place.
That bid is being buttressed by better than expected economic data, the conclusion of earnings season and the hope that despite better than expected economic data we may well see the Fed pass on a rate rise this month. It would appear as though that is asking for a lot by investors, but the market is indicating that this is precisely what is going on. Given the fact that markets will receive payroll data on Friday, we may see another mediocre performance today, but that does not discount recent gains or the fact that markets have not attempted a modest reset lower.
Yesterday’s economic Calendar provided yet more proof that the employment picture is continuing to improve. February’s ADP Employment Report posted a gain of 214k versus consensus expectations calling for a more modest gain of 185k. The EIA Petroleum Status Report could well have sent the market into a tailspin as inventories of crude for the week rose to 10.4 M barrels, but gasoline and distillates inventories remained in check at -1.5 M and 2.9 M barrels respectively.
Today’s Economic calendar is highlighted by Weekly jobless Claims (270k expected), Productivity and Costs (-3.2% non-farm, 4.7% Unit Labor Costs expected) and Factory Orders (2.0% expected).