The financial sector was by far the biggest beneficiary of the trillion dollars injected into the economic system by the Federal Reserve. The traditional drivers of the sector, such as interest rates, took a back burner to the surge of capital. Acting like a shot of adrenalin, the money sent the sector’s biggest players soaring higher in 2013. One of the primary exchange-traded funds (ETFs) tracking the sector, iShares Dow Jones US Financial (NYSE: IYF), was up close to 30%, with many of its components posting similar massive increases. But all good things must come to an end. I think… Read More

The financial sector was by far the biggest beneficiary of the trillion dollars injected into the economic system by the Federal Reserve. The traditional drivers of the sector, such as interest rates, took a back burner to the surge of capital. Acting like a shot of adrenalin, the money sent the sector’s biggest players soaring higher in 2013. One of the primary exchange-traded funds (ETFs) tracking the sector, iShares Dow Jones US Financial (NYSE: IYF), was up close to 30%, with many of its components posting similar massive increases. But all good things must come to an end. I think the party is over for this sector — at least for the rest of 2014. The sector sold off hard in January but has staged an impressive bounce back in February. Looking at the iShares financial ETF’s daily chart, you can clearly see the sharp selling in January and the bounce-back near the highs in February.   #-ad_banner-#As you know, I don’t place much credence in traditional technical analysis alone as a predictive tool in most cases. However, this pattern, combined with what is happening fundamentally, paints an ominous picture for the near-term future of the financial sector. … Read More

If you racked up big gains in the stock market last year, you have Ben Bernanke and his cohorts at the Federal Reserve to thank. #-ad_banner-#The S&P 500’s 29.6% gain in 2013 (32.4% when dividends are included), which was the best year since 1997, was largely based on comments made by the Fed in December 2012. Back then, the economy was so weak that the Fed committed to keep the federal funds rate at historic lows in place until at least the middle of 2015, even later than many economists had assumed. Against such a favorable interest rate backdrop, stocks… Read More

If you racked up big gains in the stock market last year, you have Ben Bernanke and his cohorts at the Federal Reserve to thank. #-ad_banner-#The S&P 500’s 29.6% gain in 2013 (32.4% when dividends are included), which was the best year since 1997, was largely based on comments made by the Fed in December 2012. Back then, the economy was so weak that the Fed committed to keep the federal funds rate at historic lows in place until at least the middle of 2015, even later than many economists had assumed. Against such a favorable interest rate backdrop, stocks faced little resistance. Indeed, throughout 2013, the likelihood of an imminent increase in the federal funds rate remained off the table. And three Fed governors even suggested in December that interest rates would remain untouched into 2016. But in the early months of 2014, the Fed playbook is starting to look different. The recently released minutes from the past Fed meeting in late January show that some Fed governors are getting anxious. As The Wall Street Journal noted recently, Fed governors have begun discussing “the possibility of rate hikes in the near future.” An increasing number… Read More

Last week, the bellwether S&P 500 essentially drifted sideways as it negotiated its 1,851 Jan. 15 all-time high from below but failed to establish a new one, closing down 0.13% for the week. Weak manufacturing and housing data weighed on the market, and the January Federal Open Market Committee minutes didn’t help matters by indicating almost certain tapering this year in bond purchases. #-ad_banner-#The tech-laden Nasdaq 100 (-0.03%) and blue-chip Dow industrials (-0.32%) also closed lower for the week, with only the small-cap Russell 2000, eking out a small gain of 1.34%. Year-to-date, the major U.S. indices are mixed with… Read More

Last week, the bellwether S&P 500 essentially drifted sideways as it negotiated its 1,851 Jan. 15 all-time high from below but failed to establish a new one, closing down 0.13% for the week. Weak manufacturing and housing data weighed on the market, and the January Federal Open Market Committee minutes didn’t help matters by indicating almost certain tapering this year in bond purchases. #-ad_banner-#The tech-laden Nasdaq 100 (-0.03%) and blue-chip Dow industrials (-0.32%) also closed lower for the week, with only the small-cap Russell 2000, eking out a small gain of 1.34%. Year-to-date, the major U.S. indices are mixed with the Nasdaq 100 up 1.97% and Russell 2000 up 0.1%, but the S&P 500 down 0.7% and Dow off 2.9%. Improving Momentum in S&P 500, but Other Indices Must Confirm Last week, I pointed out that the Moving Average Convergence/Divergence (MACD) indicator, which plots the difference between a 12-day and a 26-day exponential moving average, was indicating a near-term decision point for the S&P 500, from which its late January decline should resume if still intact. The green circle in the right lower edge of the chart below, an updated version of last week’s chart,… Read More

Thanks, Old Man Winter. Consumers have already been in a sour mood, and you’re not helping matters. Icy roads and bitter winds have left many people to stay at home — and keep their cash in their pocket. #-ad_banner-#For companies that have been looking for signs that retail spending is finally ready to grow, this roadblock has been unwelcome. The bleak winter likely explains why retail spending on goods and services like cars, restaurants and gas stations slipped 0.4% in January on a seasonally adjusted basis, according to the National Retail Federation. Yet before you conclude that the era of… Read More

Thanks, Old Man Winter. Consumers have already been in a sour mood, and you’re not helping matters. Icy roads and bitter winds have left many people to stay at home — and keep their cash in their pocket. #-ad_banner-#For companies that have been looking for signs that retail spending is finally ready to grow, this roadblock has been unwelcome. The bleak winter likely explains why retail spending on goods and services like cars, restaurants and gas stations slipped 0.4% in January on a seasonally adjusted basis, according to the National Retail Federation. Yet before you conclude that the era of robust consumer spending will never return, consider an interesting stat offered up by J.P. Morgan: In just the past two years, consumers’ net worth has expanded by $13 trillion. So if consumers have stronger balance sheets, why aren’t they spending? The key takeaway from these economists: “It is our view this is likely just a delayed reaction and that the increase in net worth will ultimately translate into stronger spending.” To be sure, much of the increase in wealth is attributable to a surging stock market. Many may feel that such gains are ephemeral, especially after seeing their net worth… Read More

Last week, the bellwether S&P 500 continued its rebound from a successful test of underlying support at 1,730 at the beginning of the month. The U.S. broad market index finished Friday’s session at 1,839, 2.3% higher for the week and just off the all-time high at 1,851. #-ad_banner-#Year to date, however, the S&P 500, along with the blue-chip Dow 30 and small-cap Russell 2000, are in negative territory. The tech-laden Nasdaq is the only major U.S. index in positive territory in 2014, up 1.6%, and it must continue to lead on the upside for the broad market advance to continue. Read More

Last week, the bellwether S&P 500 continued its rebound from a successful test of underlying support at 1,730 at the beginning of the month. The U.S. broad market index finished Friday’s session at 1,839, 2.3% higher for the week and just off the all-time high at 1,851. #-ad_banner-#Year to date, however, the S&P 500, along with the blue-chip Dow 30 and small-cap Russell 2000, are in negative territory. The tech-laden Nasdaq is the only major U.S. index in positive territory in 2014, up 1.6%, and it must continue to lead on the upside for the broad market advance to continue. U.S. Stocks at a Minor Decision Point One quick look at a daily bar chart reveals that, despite a new all-time high being set on Jan. 15 at 1,851, the S&P 500 has essentially been drifting sideways since the beginning of the year. Moreover, the longer this sideways trade persists, the more it will look like the distribution phase that follows a sustained price advance and precedes a correction, as price momentum starts to wane and investors start booking near-term profits. One way to measure price momentum is via the Moving Average Convergence/Divergence (MACD) indicator, which plots the difference… Read More

Economics is known as “the dismal science” for good reason. Like the weather, economic winds can shift on a moment’s notice, rendering recent forecasts completely moot. But the current economy is proving to be even trickier than usual.#-ad_banner-# In the final months of 2013, the economy was developing a full-blown head of steam — despite the impact of the October government shutdown. The U.S. economy grew at a 4.1% annual pace in the third quarter and a 3.2% clip in the fourth quarter. As the year began, all signs pointed to robust 3% growth in 2014, which would have been… Read More

Economics is known as “the dismal science” for good reason. Like the weather, economic winds can shift on a moment’s notice, rendering recent forecasts completely moot. But the current economy is proving to be even trickier than usual.#-ad_banner-# In the final months of 2013, the economy was developing a full-blown head of steam — despite the impact of the October government shutdown. The U.S. economy grew at a 4.1% annual pace in the third quarter and a 3.2% clip in the fourth quarter. As the year began, all signs pointed to robust 3% growth in 2014, which would have been the strongest showing since 2005. Quite suddenly, the U.S. economy is looking less perky. Since the start of the year, we’ve seen: • Two straight months of non-farm payroll growth below 125,000, blunting the employment momentum we’d seen in prior months. • U.S. exports fell 1.8% in December (data were released in early February) as global demand for our goods and services are starting to weaken. The key trouble spot: Exports to the European Union fell 9% in December. And in the months ahead, demand coming from emerging markets may slump, especially in countries that have been hit by sliding… Read More

U.S. stocks were little changed after a volatile week. ‘January Indicator’ Signals 50/50 Chance of Gains in 2014 SPDR S&P 500 (NYSE: SPY) fell 0.4% last week and was down 3.52% for the month. SPDR Dow Jones Industrial Average (NYSE: DIA) was down 5.2% for the month.#-ad_banner-# According to a popular interpretation of the “January Indicator,” this makes the widely followed market forecasting tool bearish for 2014. But history doesn’t support this interpretation of the indicator. In the past, a negative performance for the Dow in… Read More

U.S. stocks were little changed after a volatile week. ‘January Indicator’ Signals 50/50 Chance of Gains in 2014 SPDR S&P 500 (NYSE: SPY) fell 0.4% last week and was down 3.52% for the month. SPDR Dow Jones Industrial Average (NYSE: DIA) was down 5.2% for the month.#-ad_banner-# According to a popular interpretation of the “January Indicator,” this makes the widely followed market forecasting tool bearish for 2014. But history doesn’t support this interpretation of the indicator. In the past, a negative performance for the Dow in January has occurred 22 times since 1950, and a down month had been followed by declines in the rest of the year 50% of the time. Big losses in January are less common. This is the eighth time the Dow has fallen more than 5% in the first month of the year, and the market showed a gain in the rest of the year five of the previous seven times. The average of a small sample is not statistically significant, but the average gain in the seven years has been 6.5%. Based on the size of January’s loss, we can… Read More

If the market was looking to get our attention, it has it now. Since Jan. 13, the S&P has dropped at least 1% on three occasions. It now stands nearly 5% below its 52-week high.  At this point, investors have begun to wonder if the market choppiness is a sign of a looming correction, which is defined as a 10% pullback (a bear market is a pullback of 20% or more). It’s been quite a while since we’ve had a market correction: It happened once in 2010, 2011 and in the middle of 2012, but it hasn’t happened… Read More

If the market was looking to get our attention, it has it now. Since Jan. 13, the S&P has dropped at least 1% on three occasions. It now stands nearly 5% below its 52-week high.  At this point, investors have begun to wonder if the market choppiness is a sign of a looming correction, which is defined as a 10% pullback (a bear market is a pullback of 20% or more). It’s been quite a while since we’ve had a market correction: It happened once in 2010, 2011 and in the middle of 2012, but it hasn’t happened since. #-ad_banner-#Notably, each correction has been followed by an impressive rebound, and some investors would welcome such a purge. In a market where values remain hard to find, pullbacks create solid openings. If we are entering into a corrective phase, history suggests it would last a couple of months. (The 2011 correction was quite rapid and due solely to the government shutdown.) Frankly, it’s unclear if the market’s recent gyrations will trigger a major directional shift. The economy appears fairly healthy, earnings season has been reasonably impressive, and Washington gridlock doesn’t seem to be an issue at the… Read More

U.S. stocks became oversold after a sharp sell-off, while emerging markets entered bear market territory.#-ad_banner-# Stocks Oversold After Three-Day Sell-off SPDR S&P 500 (NYSE: SPY) fell 2.13% on Friday and was down 2.59% for the week. Friday’s sell-off left the major market averages deeply oversold. The chart below includes Bollinger BandsR along with prices. The Bands are placed three standard deviations from the 20-day moving average instead of the standard setting of two standard deviations. Two standard deviations should contain 95.45% of the price action, while 99.73% of the price action should occur within the… Read More

U.S. stocks became oversold after a sharp sell-off, while emerging markets entered bear market territory.#-ad_banner-# Stocks Oversold After Three-Day Sell-off SPDR S&P 500 (NYSE: SPY) fell 2.13% on Friday and was down 2.59% for the week. Friday’s sell-off left the major market averages deeply oversold. The chart below includes Bollinger BandsR along with prices. The Bands are placed three standard deviations from the 20-day moving average instead of the standard setting of two standard deviations. Two standard deviations should contain 95.45% of the price action, while 99.73% of the price action should occur within the Bands when they are set at three standard deviations. Friday’s close, more than three standard deviations below the average, is expected to happen 0.27% of the time, or once every 370 trading days (about 18 months). Prices drop below the lower Bollinger Band a little more often than expected. This has happened 17 times since SPY began trading in 1993, or about once every 15 months, on average. Buying after prices fall this much would have been profitable in the short term. One week later, prices were up an average of 1.73%, and 67% of the trades would… Read More

Traders are struggling to understand what the unemployment report means to the Federal Reserve and to the markets, but their initial assessment seems to be bullish.#-ad_banner-#​ Concerns About Spending Offset by Weak Jobs Data SPDR S&P 500 ETF (NYSE: SPY) gained 0.68% last week despite negative news from several companies throughout the week. Until Friday, retailers dominated the news about the stock market. J. C. Penney (NYSE: JCP) and Sears (NASDAQ: SHLD) reported disappointing holiday sales and the stocks sold off. Other retailers also reported lower sales. Addressing future profitability, Macy’s (NYSE: M) jumped after… Read More

Traders are struggling to understand what the unemployment report means to the Federal Reserve and to the markets, but their initial assessment seems to be bullish.#-ad_banner-#​ Concerns About Spending Offset by Weak Jobs Data SPDR S&P 500 ETF (NYSE: SPY) gained 0.68% last week despite negative news from several companies throughout the week. Until Friday, retailers dominated the news about the stock market. J. C. Penney (NYSE: JCP) and Sears (NASDAQ: SHLD) reported disappointing holiday sales and the stocks sold off. Other retailers also reported lower sales. Addressing future profitability, Macy’s (NYSE: M) jumped after announcing plans to cut costs. SPDR S&P Retail ETF (NYSE: XRT) has a high correlation with SPY, and weakness in retailers would be a warning sign that the broad stock market is vulnerable to a sell-off. On Friday, however, traders’ concerns shifted away from retailers to the broader economy. The unemployment report showed that job creation stalled in December, and the weakness was generally considered to be bullish for stocks, bonds and gold. As usual, traders trying to anticipate what the Federal Reserve will do seemed to drive the market. Last month, the Fed announced that it would begin tapering… Read More