Stocks opened for trade on Friday, aiming for their first four-day win streak of 2016. The first week of performance was simply stunning as the S&P 500 moved higher by nearly 60 points, following a blood bath in January and a flat February.
Since the February 11 low of 1802, the S&P 500 has rallied over 200 points. The recovery in crude oil prices and participation on the upside from the financial sector lent to the bullish activity. Interestingly, gold also made a fantastic recovery, which leaves traders scratching their heads because equities and gold typically move opposite of each other.
One reason could be tied to interest rates. Gold typically moves higher as interest rates move lower. In a very low-to-zero-to-negative interest rate environment, the run up makes sense. The equity rally could also be predicated on the fact a March rate hike appears to be out of the cards. But, if low interest rates are bad for the banks’ earnings and growth, why have the banks rallied?
“Lower interest rates and improving demand out of China and India are factors in gold rally,” Phil David, Founder of PSW Investments, explains. “The Bank of Japan and European Central Bank continue to ease monetary policy, and gold is becoming a popular hedge for what feels like coming inflation.”
Copper, also known as the “red metal”, jumped to its highest level in four months. Recall, China is the world’s largest consumer of copper.
Based on certain technical indicators Jeremy Klein, Chief Market Strategist at FBN Securities, sees in the market, “Copper should undergo this technical phenomenon by early next week which would offer some much needed optimism for the Chinese economy. An improving fundamental environment could finally put the recent pullback further in the rearview mirror,” he said in a research report.
Is this a powerful new uptrend or the climax to a counter-trend rally in the stock market? Just about every technical indicator suggests that the market is severely overbought. U.S. economic data has been mixed, while global data shows growth is slowing. Friday's Jobs Report headline number was strong, but wage growth is declining. Crude has moved higher, even though the over supply glut is as bad as it’s ever been. In fact, oil had its third weekly gain, a move we have not seen since May 2015! These are some of the themes traders are trying to work out relative to price action.
“These types of extreme moves happen in volatile markets," Sander Read, President & CEO of Lyons Wealth Management said. "The important thing for investors to do is keep the longer-term in focus. We have been in consumer cyclical stocks and good dividend payers, which has helped our clients ride out the swings.”
Trading Week Ahead: March 7-11
The earnings calendar is virtually wiped clean, but there are a few names, mostly in the consumer sector that traders will have on their radar including; Shake Shack (SHAK), Dick’s Sporting Goods (DKS), Navistar (NAV), Dollar General (DG) and ULTA Salon, Cosmetics & Fragrances (ULTA). Even though there is little to watch in terms of corporate reports, there are several sell-side broker conferences taking place next week.
It is important to be aware of when and where companies you are trading or invest in are presenting because management is notorious for throwing in tidbits on forward guidance or updates on the business, which can certainly move stocks and related sectors. In a recent example, yoga-pants giant Lululemon (LULU) announced in January updated guidance at the ICR Conference. Management stated that fourth quarter earnings and revenue expectations would be higher than the previous range given to the investment community. As a result, LULU shares traded 4 percent higher in after-hours trading.
These are some of the larger conferences on tap:
* Cowen & Co 36th Annual Healthcare Conference March 7-9
* Deutsche Bank Media, Internet and Telecom Conference March 7-9
* Piper Jaffray Technology, Media and Telecom Conference March 8-9
* RBC Financial Institutions Conference Marc h 8-9
* JPMorgan Aviation, Transportation and Industrials Conference March 8-10
Economic data is relatively light this week. Crude oil and natural gas weekly inventory, Jobless Claims and Import and Export Prices are the most important reports to watch. While the U.S. is in a data “vacuum” next week, traders will be focused on some very key global data points, including China Foreign Exchange Reserves, China Imports/Exports/Trade Balance for February, China PPI and CPI for February, China Retail Sales and Industrial Production for January and Japan Q4 GDP.
Klein maintains his bullish thesis for the stock market in 2016, "HFR performance data and open interest for the futures hint at the presence of a large hoard of cash on the sidelines. As stocks climb, institutions will feel compelled to plow their idle assets into shares especially as the excessive amounts of skittishness subside."