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Several reports of the decline of first quarter earnings have been receiving a lot of attention on Wall Street. FactSet summarized the changes of analyst earnings estimates for companies in the S&P 500 for the first quarter of 2016. The aggregation of the earnings estimates for all the companies in the index dropped by 9.6% during this period. By comparison, the average decline in quarterly earnings estimates over the past 10 years is 5.3%. Analysts don’t like what they are seeing in 2016 and this began to weigh on the market in this week's trading. SPX dropped $21 to close at $2045 and RUT lost $13, closing at $1096. Volatility rose with the VIX closing up 1.3 points to 15.4%.
Trading volume rose today with 2.5 billion shares of the S&P 500 companies trading. Trading volume rose 15% on the NYSE but was nearly flat on NASDAQ (up 0.4%).
The ISM services index came in at 54.5 for March, up from 53.4. JOLTS job openings dropped slightly in February, from 5.604 million to 5.445 million.
An article in IBD today speculated that the high tech sector may be particularly hard hit in this earnings season. FactSet's report issued last week, but that story is gaining visibility and worrying traders. All of the craziness of the presidential primaries probably isn't helping either.
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The markets were subdued today, probably due to many traders taking an extended long weekend. The fact that markets remained closed in Europe may have influenced those decisions. SPX closed at $2037, up one dollar. RUT also closed up one dollar at $1073. Volatility rose a half point to 15.2%. Trading volume reflected the small market gains with only 1.7 billion shares of the S&P 500 stocks trading today. Trading dropped 17% on the NYSE and declined 12% on NASDAQ.
Pending home sales were encouraging, increasing 3.5% in February, a big improvement over January's 3.0% decline.
The balance of the week is loaded with economic data: Case Schiller housing prices, ADP private payrolls, Chicago PMI, ISM manufacturing index, and construction spending. And the week ends with the jobs report, aka, the non-farm payrolls report.
Until tomorrow...
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The markets paused today with SPX rising only two dollars to $2052 and RUT losing three dollars to close at $1099. Volatility continues to contract with the VIX dropping about two tenths of a point to 13.8%.
Trading volume was down dramatically after expiration Friday with 2.0 billion shares of the S&P 500 stocks. Trading on the NYSE dropped 52% and trading volume dropped 44% on NASDAQ.
The only economic data released today were existing home sales for February at 5.08 million, down from 5.47 million homes.
SPX opened weakly this morning and traded down to $2043 before rebounding to close at $2052. It seems as though everyone assumes the bull market is returning. This is surprising since it wasn't long ago that the doomsday gurus were on every finance cable network. The reality is probably in between those extremes. The basic U.S. economic data simply don't support the idea of a booming market. But those same data don't support the dire predictions of recession either. Stay tuned.
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We had become accustomed to higher prices every day, but it had to slow down eventually. Yesterday's market shook off the Brussels attack, but pulled back a bit today for no apparent reason. SPX closed down $13 to $2037 and RUT gave up $22 to close at $1076. Volatility rose almost one point with the VIX at 14.9%. Trading volume was up slightly with 2.1 billion shares of the S&P 500 companies trading. Trading on the NYSE rose 8% and trading volume was up 11% on NASDAQ.
New home sales came in at 512 thousand for February (annualized); this is a small increase from January's 502k.
The 200 dma at $2017 should act as support for the SPX. The resistance level at $2050 has now been reinforced; it will be even harder to break through next time. RUT is back in the neighborhood of the August flash crash retest. Earlier this month, RUT thrashed in this area for about two weeks and never did break through the August flash crash levels at about $1105. We may be caught in this choppy market for a while.
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Equity and index options expire tomorrow at midnight. Many of you may think that today was expiration, but the options contract is a binding legal contract and the brokers need time to make all of the cash transfers and equity purchases and sales before the contracts expire. SPX settled at $2050.07 and RUT settled at $1097.85. I closed our SPX Mar 2050/2060 call spreads yesterday for $1.00; allowing them to enter expiration would have saved us some money; settlement at $2050.07 means one contract would have resulted in a $7 debit whereas we spent $100 to close one spread. But we would have been taking a big risk. Sometimes the difference between the Thursday close and settlement is large. It averaged $9 for SPX last year but ran as high as $23. If you are interested, download my SPX and RUT settlement spreadsheet.
SPX closed at $2050 today, up $9. RUT also continued to run, closing up $10 at $1102. Volatility continued to contract with VIX losing half a point to 14%.
SPX has now put the 200 dma in the rear view mirror. The high at $2078 from December 29th is the next resistance level. I am inclined to think the Fed induced euphoria will end by then. For example, here is a sobering stat: FactSet reports that the estimated profit margin for the first quarter for the S&P 500 is 9.3% - the lowest since 4Q 2012. If we exclude energy companies, it rises to 10% and that is the lowest since Q1 2014. Either way, that doesn't look like the economic strength one expects behind a bull market.
Enjoy your weekend. The tulips are sprouting outside. But we are expecting snow this evening. Let me go check why we are living here...
