After one of the best rebounds in market history, the first quarter of 2016 closed with a whimper amid lingering focus on Federal Reserve Board Chair Janet Yellen’s dovish testimony on Tuesday.
All eyes are on Friday’s non-farm payroll report for clues as to the likely pace and timing of rate hikes later this year, as well as the start of the first-quarter earnings season on April 11.
In the end, the Dow Jones Industrial Average lost 0.2%, the S&P 500 fell 0.2%, the Nasdaq Composite gained a fraction and the Russell 2000 finished the month out with a 0.3% gain today. Treasury bonds were stronger, the dollar was weaker, gold gained 0.3%, and crude oil lost 0.4% to close at $38.17 a barrel.
The loss in crude oil pushed the ProShares UltraShort Crude Oil (NYSEARCA:SCO) to a gain of 4.3% for Edge subscribers since recommended on March 24 — capping a 9%-plus gain for the month of March vs. a 3.7% gain for the S&P 500.
Defensive utility stocks led the way with a 0.5% gain, the only major sector group to finish in the green. Materials led the laggards, down 0.9%, followed by industrials which lost 0.4%.
Best Buy Co Inc (NYSE:BBY) gained 2.8% after being initiated at overweight at Barclays on management’s commitment to dividend increases and confidence in its strategic transformation efforts. Wearables maker Fitbit Inc (NYSE:FIT) gained 13.1% after being upgraded to buy by analysts at Longbow on the company’s 2016 product cycle and long-term potential from corporate-wellness programs.
Target Corporation (NYSE:TGT) lost 1.6% after being downgraded to underweight by analysts at Barclays on overly optimistic comp-growth forecasts and margin pressure.
Watch for the big reveal of the Model 3 from Tesla Motors Inc (NASDAQ:TSLA) later tonight with an expected price tag of about $35,000. Between the start of the year the middle of February, the stock lost 40% and then regained it all by the third week of March. Tesla, however, remains well below the all-time highs seen last summer. The company’s success depends on the Model 3 moving about 500,000 units per year.
On the economic front, initial jobless claims climbed to 276,000 from 270,000 for its third consecutive gain. But this was also the 56th consecutive week below the 300,000 level. Heading into tomorrow’s jobs report, Wall Street is looking for a 210,000 payroll increase (following a 242,000 gain in February) with the unemployment rate holding steady at 4.9%.
The Chicago manufacturing PMI continued a pattern of strength from the regional manufacturing surveys, with the indicator increasing to 53.6 in March, ahead of the February’s 47.6 result and the consensus estimate of 51.0. The three-month trend reached its highest level in more than a year while the first-quarter average was at its highest since the end of 2014.
Combined with evidence of building inflationary pressures — and a possible strong jobs report on Friday — and Yellen’s economic justification for holding off on any new rate hikes is looking shaky.
No wonder, on a technical basis, stocks look so shaky.
And you could see it in the 58%-plus drop in New York Stock Exchange net advancing issues during Wednesday’s market advance — to 770 issues — from Tuesday’s advance.
Another way to view this is by looking at the ratio of up volume vs. total volume on the NYSE. It also dropped yesterday, by 9.2%, to 65% of total volume. Compare this to a high of 72% hit earlier in the week, of 85% hit in early March, of 90% hit in February, and of 92% hit in late January.
A stronger economy, lower unemployment, and higher inflation might be good for the economy; but it won’t be for a stock market addicted to cheap money stimulus, as the Fed is forced to raise rates as soon as April, but more likely in June.
That will worsen the weak oil/strong dollar dynamic that’s weighing so badly on corporate earnings.
All evidence suggests Thursday’s rally was a head fake “blow off” top before the bears finally get to work reversing what’s been a historic, uninterrupted seven-week uptrend.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.
