On Friday, stocks faded as Q1 ended with a whimper: The Dow Jones Industrial Average fell 0.3%, the S&P 500 fell 0.2%, the Nasdaq fell 0.04%, and the Russell 2000 bucked the trend, gaining 0.3%.
However, the S&P 500’s eleven sectors recorded their biggest quarterly gain since 2015. A 5.5% gain was attributed to investors’ more positive outlook and confidence by both investors and business owners. The focus of buyers tended to favor technology and internet companies vs. financial and industrial shares in Q4.
The technology sector rose 12% in Q1, and the Nasdaq, which is tech-heavy, rose 9.8%.
As we enter Q2, optimism is still high. In February, The National Federation of Independent Business reported that its index of optimism rose to its highest level in 12 years in 2017’s first quarter. And in March, the University of Michigan survey found consumers were feeling better about the economy than at any time in the last 17 years.
Finally, the first quarter of 2017 was the least volatile in years. The CBOE Volatility Index, or “Fear Index,” is positioned to record its second lowest quarterly average on record, according The Wall Street Journal. (see VIX chart, below)
At the close on Friday the Dow Jones Industrial Average fell 65 points at 20,663, the S&P 500 fell 5 to 2,363, the Nasdaq dropped 3 points to close at 5,912, and the Russell 2000 gained 4 points at 1,386. The NYSE’s primary exchange traded 982 million shares with total volume of 3.3 billion shares, and the Nasdaq crossed 1.9 billion shares. On the Big Board, advancers outpaced decliners by 1.5-to-1, and on the Nasdaq, advancers led by 1.2-to-1. Blocks on the NYSE increased to 7,038 from 6,019 on Thursday.
The shaded area of the CBOE Volatility chart shows lower average volatility than anytime in one year. Thus less fear and more confidence exists. However, note that in the July-August ’16 period volatility was also low, but preceded a period of high volatility when in late-August S&P 500 stocks fell from 2,190 to 2,083, a fall of 4.9%.
The last buy signal from our 17-month moving average of the S&P 500 was in late-March ’16 at about 2,060. Since then the S&P 500 has had a run-up of over 300 points, for a gain of almost 14.7%.
Conclusion: We have entered April, which on average, since 1950, is up about 1.9%. Thus, it is usually the best month of the year. However, two of my indicators, the VIX and the S&P’s 17-month moving average, appear to be in an overbought condition.
Before our readers respond with a “But,” let me say, “Yes, the market could become even more overbought.” However, such excessively overvalued conditions rarely last long. Thus, I caution that rather than chase stocks, we may have an excellent opportunity to nail down profits, step back, and give stocks an opportunity to reveal the direction of their next major move.
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.
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