/perspectives/weekly-viewpoint/will-winter-blues-lead-to-a-spring-thaw

Will Winter Blues Lead to a Spring Thaw?

The Dow Jones Industrial Average (Dow) added 1.66%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) gained 1.47%, the Standard & Poor’s 500® Index (S&P 500) finished up 1.70% and the Nasdaq Composite Index (NASDAQ) tacked on 2.23%. 

April 13, 2015    |    By Mike Schwager

Performance for Week Ending 4/10/15:

The Dow Jones Industrial Average (Dow) added 1.66%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) gained 1.47%, the Standard & Poor’s 500® Index (S&P 500) finished up 1.70% and the Nasdaq Composite Index (NASDAQ) tacked on 2.23%. Sector breadth was positive with 9 of the 10 S&P sector groups finishing higher. The Industrials sector (+3.28%) led the way higher followed by Energy (+3.09%) and Healthcare (+2.89%).

Index* Closing Price 4/10/15 Percentage Change for Week Ending 4/10/15 Year-to-Date Percentage Change Through 4/10/15

Dow

18057.65

+1.66%

+1.32%

Wilshire 5000

21844.93

+1.47%

+2.61%

S&P 500

2102.06

+1.70%

+2.10%

NASDAQ

4995.98

+2.23%

+5.49%

*See below for Index Definitions
 

MARKET OBSERVATIONS: 4/6/15-4/10/15

The major market indices finished the week higher as investors repositioning back into equities in anticipation of a rebound in economic data during the current quarter and growing belief that the bar may have been set too low for first quarter earnings season. The S&P 500 finished higher for the third consecutive week while the Dow closed above the 18K level for the first time since March 24.

FOMC Meeting Minutes
Following the traditional three week delay, the minutes from the March Federal Open Market Committee (FOMC) meeting were released last week. The minutes suggested that Fed members were split as to when to begin to start moving rates higher.  According to the minutes “several participants judged that the economic data and outlook were likely to warrant beginning normalization at the June meeting.” However, others argued that energy-price declines and the dollar’s appreciation would continue to curb inflation, suggesting that a rate increase should be delayed until later in the year. A couple committee members said the economy probably wouldn’t be ready for tighter policy until 2016. Seeing that the meeting took place prior to the release of the much weaker than expected March payroll report, the probability of a June lift-off has been lessened significantly.

As was the case last year, harsh winter weather was a significant headwind to growth during the first quarter. In addition to weather, economic growth this year was also impacted by the West Coast port strike. The good news is that the port strike has been settled and the weather is starting to turn warmer, suggesting that both of these issues should prove transitory.  If last year is used as a roadmap, pent up demand resulted in a sharp rebound in growth during the second and third quarters. A similar scenario seems plausible again this year. With the Fed stressing “data dependency” a solid rebound in economic growth during the next few months would likely set the stage for tighter policy come the September FOMC meeting.

Early Look at Q1 EPS Season:
While it’s very early in the process, first quarter earnings season is off to a better than expected start. Expectations heading into the quarter are relatively muted due to the impact from lower energy prices and the strong US dollar, with overall S&P 500 earnings expected to fall by over 5%. However, based on results from “early reporters” (those with August quarter-ends) current expectation could prove overly cautious. While these companies are largely concentrated in the Consumer and Tech sectors, they can give an early read on the quarter. So far, 83% of the “early reporters” have surprised on the upside with overall earnings UP by 9.0% - stay tuned.

Investor Sentiment Stuck in Neutral:
The American Association of Individual Investors (AAII) reported last week that Bullish sentiment in the most recent period fell to 28.7% while Bearish sentiment came in at 24.15%. Interestingly, Neutral sentiment has been moving higher over the past few weeks and currently stands at 47.15% - the highest since February 20003. The surge in Neutral sentiment suggests a high level of uncertainty in the market place as investors ponder Fed policy, the outlook for the global economy, current valuation levels, and concerns over whether companies will be able to deliver sustainable earnings growth.  This also likely explains why the markets have more or less been stuck in a “holding pattern” since the start of the year.

The Week Ahead:
First-quarter earnings season will begin to kick into gear with 35 members of the S&P 500 scheduled to report results. Included in this group are over half a dozen Dow components including Intel, JPMorgan, Johnson & Johnson, American Express, Goldman Sachs, UnitedHealth Group, and General Electric. The economic calendar will also be robust with a focus on inflation, manufacturing and housing.  Reports of interest include, the March Producer Price Index (PPI), March retail sales, March industrial production and capacity utilization, the April Empire State manufacturing survey, March housing starts and building permits, the April Philadelphia Federal Reserve’s manufacturing survey, the March Consumer Price Index (CPI) and the preliminary University of Michigan April consumer sentiment survey. Also of interest will be the release of the Federal Reserve’s periodic Beige Book on Wednesday. Fed Heads will be out and about during the week with 7 appearances scheduled.


Definitions

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.

Past performance is no guarantee of future results. 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.

The individual companies mentioned in this piece were for informational purposes only and should not be viewed as recommendations.

The comments should not be construed as a recommendation of individual holdings or market sectors, but as an illustration of broader themes. This document contains forward-looking statements about various economic trends and strategies. You are cautioned that such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the individual strategist. Information in this report does not pertain to any investment product and is not a solicitation for any product. This material has been prepared using sources of information generally believed to be reliable. No representation can be made as to its accuracy.

 

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