Market Summary
Wall Street stocks ended the day higher this past Friday,
snapping a four-day losing streak as traders shrugged off weaker-than-expected
US economic growth in the fourth quarter. US stocks fell the first four days of
the week on worries about the crisis in Yemen and excessive equity valuations.
"We had so many down days that the market is due for some sort of a pause,
but there is nothing really positive or encouraging to help push prices
meaningfully higher," said Sam Stovall, chief investment strategist at
S&P Capital IQ.
Stocks fell most of the week due to a combination of
weaker-than-expected economic data and concerns that the rapid rise of the
dollar may crimp U.S. corporate earnings. Companies start releasing their
first-quarter results next month. The four consecutive days of losses made last
week the second-worst week for the market so far this year. The Dow Jones
industrial average remains down slightly for 2015, and the S&P 500 index is
essentially flat.
Treasury bonds continue to trend bullish, even with a
pullback over the past few days. With recent geopolitical events reminding
everyone that everyplace in the world is not safe and economic growth is tepid
at best; Treasuries should eventually continue to rally. The dollar has pulled
back following its huge rally, but similar to treasuries; this pullback is most
likely due to profit taking. Nothing has changed so dramatically as to
fundamentally alter the bullish trends in treasury bonds and the dollar. Commodities continue to struggle, even with recent
strength in gold the past few days, which is most likely due to geopolitics,
not to a change in the global economic outlook. Economic indicators are showing
the U.S. economy to be on pace for its poorest showing since 2008. Going
forward, profits and growth will probably be the investors’ chief concerns.
Investment Analysis
The question is whether the U.S. economy is really slowing
down or whether the phenomenon can be blamed on the nasty winter weather. In
addition to first-quarter earnings reports, investors will also be watching the
Labor Department's monthly job markets survey, due out April 3, for insight
into how the economy is doing. "I'm trying to be as forward-looking as
possible here. Clearly the weather had some sort of impact this quarter, but I
still believe U.S. economic growth is strong," said Scott Wren, a global
equity strategist at Wells Fargo Advisors.
With the major stock indexes falling to neutral readings and
economic indicators struggling, options traders should continue to evenly
weight between bullish and bearish positions. Fed-generated momentum could
continue to push stocks higher, but slowing growth and geopolitical events could
cause the market to do an about-face very quickly.
As evidenced in the graph below, the past month has been a
wholesale slaughter for most of the S&P sectors. The only group to barely
survive the onslaught is the Healthcare sector. Right now money managers are
implementing the end-of-quarter sector rotation to position their portfolios
for what they perceive will be the best performing investments over the next
six months. Healthcare has been a leading S&P sector the past few months
and right now is the only group in positive territory over the past month. You
want to have some exposure to healthcare, plus financial and cyclical stocks as
well. It is probably a good time to consider bidding on shares you have on your
watch lists that are now reasonably prices.
By Gregory Clay
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