Not only was last week’s equity market price action constructive given the overhang provided by the Coronavirus, but that price action, when paired with other measures of investors sentiment, speaks to the likely continuation of our trend higher. For example, the CBOE Market Volatility S&P 500 (VIX) reading closed at 13.68 on Friday after trading off 3.32%.
The VIX is clearly not pricing in any undue risk-off in the market at the moment.
The Put/Call Ratio is a healthy 0.78, the High-Low Ratio is 3.81, and Margin Debt is a manageable 4.5, so not only have we continued to see rising equity prices, but those rising prices have been underpinned by solid investors’ psychological indicators. Market internals have remained positive as well.
Last week, new highs on the Nasdaq averaged 211. On the New York Stock Exchange, new highs averaged 219.
US equity markets open this morning after the long President’s Day weekend in a “Confirmed Uptrend.” Last Friday was the first of several that did not see markets post a meaningful pullback heading into the weekend. Markets were mixed and volume metrics slipped. The S&P 500 added 6.22 points or 0.18%. The Nasdaq added 19.21 points or 0.20% while the Dow Industrials slipped fractionally -25.53 points or 0.09%.
Last week’s Economic Calendar Highlights:
Although Fed Chair Powell’s testimony did not provide for any unexpected fireworks last week, his testimony was the lynchpin of the week for investors. He wrapped up his semi-annual address to the Senate Banking Committee on Wednesday after having addressed the House Financial Services Committee on Tuesday. Loosely speaking, and as expected, Fed Chair Powell gave the U.S. economy high marks – with an emphasis on GDP expansion, employment gains, and rising wages.
Importantly, Chair Powell also underscored the national importance of addressing income inequality. He referred to this ongoing and multi-decade challenge as something that was “not our self-image as a country.” I don’t think many would disagree with him. As a way of highlighting potential remedies for this challenge, Powell touched on the need for additional education and training. During his testimony, he also spoke to large-scale asset purchases in the event of a downturn in the economy. Wage growth, often simply gauged by the monthly employment report, is also heavily impacted by productivity.
The topic that was top-of-mind for all listening was the risk the Coronavirus poses to markets. Arkansas Senator Tom Cotton asked the most poignant question of the Fed Chair when he inquired how the virus would impact US growth. The answer was straightforward enough: Powell stated that he thought the impact on China would be significant. The impact would be less significant on China’s trading partners, though there would be data to analyze in the coming weeks.
My focus on the Labor Force Participation Rate (LFPR) vertical in the monthly employment report, both recently and over several quarters, received a degree of validation by the Fed Chair on Wednesday. He referred to the flat LFPR as a positive: “There’s a supply response from the public, which is a very positive thing.” It is yet one more data point that underscores the health, breadth, and depth of the current state of the employment market.
Flickr photo: gertys
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