March Madness - the Rebound Continues
The major market indices finished the week higher with the S&P 500 gaining for the fourth consecutive week. After falling by over 10 percent through the closer on February 11th, the S&P has rallied sharply and is now down by less than 1 percent on a total return (including dividends) basis.
March 14, 2016
| By Mike Schwager
Performance for Week Ending 3/11/2016:
The Dow Jones Industrial Average (Dow) gained 1.21%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) added 1.0%, the Standard & Poor’s 500 Index (S&P 500) tacked on 1.11% and the Nasdaq Composite Index (NASDAQ) finished up 0.67%. Sector breadth was positive with all 10 of the S&P sector groups finishing higher. The Materials sector (+2.14%) led the way higher followed by Utilities (+2.13%) and Energy (+1.89%).
||Closing Price 3/11/2016
||Percentage Change for Week Ending 3/11/2016
||Year-to-Date Percentage Change Through 3/11/2016
*See below for Index Definitions
MARKET OBSERVATIONS: 3/7/16 – 3/11/16
The major market indices finished the week higher with the S&P 500 gaining for the fourth consecutive week. After falling by over 10 percent through the closer on February 11th, the S&P has rallied sharply and is now down by less than 1 percent on a total return (including dividends) basis. The rebound in the broader market has been driven by firming oil prices, fading fears that the US economy is headed toward a recession, and building confidence US monetary policy will remain supportive of risk assets.
On Second Thought:
The focal event of the week was the European Central Bank’s (ECB) increase in monetary stimulus at the conclusion of its Thursday’s meeting. The ECB cut rates deeper into negative territory and increased its bond buying program to 80 billion euro per month (from 60B/month). The central bank also announced that investment grade euro-denominated bonds issued by non-bank corporations are now eligible for purchase. Despite the larger than expected jolt of stimulus by the ECB, investors “sold the news” on concerns negative interest rates could hurt the banking sector, as well as, growing worries that monetary stimulus may be running into the law of diminishing returns. Adding to the negative sentiment was an indication from ECB President Draghi that the central bank does not anticipate cutting rates further.
European markets reversed course on Friday, as investors reassessed the details of the stimulus package and concluded the positive impact outweighed the negative. After all, the ECB’s inclusion of buying corporate bonds will likely result in lower financing costs for corporations and may help boost corporate investment. This, in turn, should ultimately help jumpstart stagnant economic growth. For the week, the Stoxx Europe 600 Index finished solidly higher.
US Data Remains Resilient:
The data calendar was relatively light during the week, although the weekly initial jobless claims data showed labor market conditions continue to improve. On Thursday the Labor Department reported that initial jobless claims during the week ended March 5 fell 18k to 259K, well below the 275K expected by economists and the lowest level in five months. Claims have been below 300K since March of last year, a level typically associated with an improving job market. The 4-week moving average—which helps smooth the week to week volatility—ticked down to 267.5K. On the housing front, mortgage purchase applications rose 4.2% last week. Refi applications fell 2.3%, its third straight decline, as mortgage rates ticked marginally higher. On a year over year basis, both purchases and refis are rising at a double digit pace reflecting strong housing demand and favorable credit conditions.
The Week Ahead:
The focal point of the upcoming week will be the two-day Federal Open Market Committee (FOMC) meeting on Tuesday and Wednesday. While it is unlikely the Fed will tighten policy at this meeting, investors will listen closely for clues on the timing of the next move. As a firm we are forecasting two rate hikes this year, most likely coming at the June and December meetings. The FOMC will also release an updated Summary of Economic Projections (SEP). The December SEP suggested that four rate hikes were in the cards for 2016, however, this now seems a bit aggressive in light of the recent market volatility and global growth concerns – stay tuned.
The data calendar will be very busy this week. Reports of interest include the February Producer Price Index (PPI), February retail sales, the March Empire State manufacturing survey, the February Consumer Price Index, February housing starts and building permits, industrial production and capacity utilization, the March Philadelphia Fed survey, the January Job Openings and Labor Turnover (JOLTS) Survey, and the University of Michigan’s consumer sentiment survey.
With the wraps on fourth quarter earnings season, first quarter earnings will begin to flow out in earnest. Six members of the S&P 500 are scheduled to report results during the week. Other events of interest include a handful of US election primaries, central bank meetings in Japan and England, and the kick-off of March Madness basketball.
The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.
Wilshire 5000 Total Market IndexSM represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. The index is comprised of virtually every stock that: the firm's headquarters are based in the U.S.; the stock is actively traded on a U.S. exchange; the stock has widely available pricing information (this disqualifies bulletin board, or over-the-counter stocks). The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index.
Standard and Poor's 500© Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.
Indices do not include any expenses, fees, or sales charges, which would lower performance. Indices are unmanaged and should not be considered an investment. It is not possible to invest directly in an index.
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