Stocks made only slight headway Friday even though crude oil rallied, and the major indices closed lower for the week.
The U.S. market was not alone in declining, as central bankers’ dovish approach did little to help stocks globally.
A portfolio manager at Morgan Stanley was quoted in The Wall Street Journal as saying, “In many ways, the market came roaring back because the recession story was not validated.” He also said that we’re now “at a juncture” where we need to see solid earnings growth and better-than-expected guidance from companies for stocks to advance.
As Q1 earnings season kicks off this week, we will see reports from several important financial firms, which should give investors a clue about earnings from other industries. Overall, FactSet expects first-quarter earnings to decline 8.5% year over year, but anticipates earnings will begin to improve in the second half of the year.
Energy was Friday’s best-performing sector, up 2%, as oil prices gained 6.6% at $39.72 a barrel. For the week, crude was up 8%.
The yield on the benchmark 10-year Treasury note rose to 1.72% on Friday, up from 1.70% on Thursday. Gold gained 0.5% at $1,243.80 as the U.S. dollar fell 0.3% against a basket of 16 currencies.
At Friday’s close, the Dow Jones Industrial Average rose 35 points to 17,577, the S&P 500 added 6 points at 2,048, the Nasdaq advanced 2 points at 4,851 and the Russell 2000 gained 5 points at 1,097.
The NYSE Composite’s primary exchange traded 842 million shares with total volume of 3.3 billion. The Nasdaq crossed 1.6 billion shares. On the Big Board, advancers outpaced decliners by 3-to-1, and on the Nasdaq, advancers led by 1.3-to-1. Block trades on the NYSE increased slightly to 5,462, up from 5,386 on Thursday.
For the week, the Dow and S&P 500 each fell 1.2%, the Nasdaq lost 1.3% and the Russell 2000 dropped 1.8%.
Very high downside volume for two days marks the chart of SPDR S&P Retail (ETF) (XRT) — an infection that could spread to the entire market.
The failed test of its September high was followed by a penetration of its 200-day moving average. Only a quick reversal and close above the 200-day can reverse what appears to be a massive breakdown for this important sector.
Conclusion
Consumer spending, which accounts for about 70% of GDP, may not be as bad as the chart of XRT indicates. But retail sales fell 0.1% in February, and January’s sales were revised to show a 0.4% drop after initially showing a 0.2% increase.
As mentioned, we will begin to see earnings from some important sectors this week, including the financial group. That sector’s chart is almost as negative as the retail group’s. In fact, in the past three weeks, the only sectors showing strength were the defensive ones — biotechnology, health care and precious metals to name a few.
And with the Federal Reserve “on hold” with regard to interest rate hikes, perhaps buyers should be on hold too for all but the highest quality stocks.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
