Today, the market stumbled out of the gate and selling snowballed picking up momentum when the S&P 500 fell through its 200-day moving average.

That number will be important for the reminder of the session and would be a small moral victory if the index closed above 2,614.  The more important downside test is 2,381, which held twice this year and would have to hold again.

Meanwhile, reactions to amazing earnings results continues to be the most important theme- conventional wisdom, earnings and maybe the economy has peaked.  In a bit of irony, money fleeing names with great numbers and solid guidance filtering into consumer staples like Kraft Heinz and Campbell’s.

A big day of economic news.  First, initial claims for the week ending April 28 was 211,000, an increase of 2,000 from the previous week's 209,000. A better gauge, the 4-week moving average was 221,500, a decrease of 7,750 from the previous week’s 229,250. This is the lowest level for this average since March 3, 1973, when it was 221,250.  

Continuing claims for the week ending April 21 decreased by 77,000 to 1,756,00, which is the lowest since December 8, 1973, when it was 1,717,000. The prior week was revised down by 4,000 from 1,837,000 to 1,833,000. The 4-week moving average decreased 15,500 to 1,833,250 the lowest level since December 29, 1973, when it was 1,784,250. The previous week was revised down from 1,849,750 to 1,848,750.

Labor markets remain tight as supply, especially skilled labor, remains constrained.

First quarter nonfarm business Productivity of +0.7% missed the estimates of +1.0%, but it was better than the +0.3% in the prior quarter.  Manufacturing sector productivity was up 0.5%.  Unit labor cost increased 2.7% (missing the expectations for a 3% increase), while hourly compensation increased 3.4%.  Year-over-year productivity is up 1.3%, exceeding the annual average from 2007-2017 of 0.7%, but off the 2.1% long term average from 1947-2017.  Overall, productivity is improving, gradually, but is still weaker than long term historic norms.

Trade Deficit Narrows

The latest Goods and Service trade balance for March was a deficit of $48.96 billion vs the estimate of $49.6 billion and was down $8.8 billion from February.  This was the lowest level since September and the largest decline in two years.  March exports were $208.5 billion, up $4.2 billion from February, while imports increased $4.6 billion to $257.5 billion.

• Exports of goods +$3.7 billion to $140.9 billion
• Export of services +$0.4 billion to $67.6 billion
• Imports of goods -$3.7 billion to $210.4 billion
• Import of services -$0.9 billion to $47.1 billion

Trade deficits with China, the EU, Mexico, Japan, Germany, OPEC, and Canada on goods will remain a key focus of the administration as it continues to seek better agreements.

Factory Orders and ISM Non-Manufacturing

Factory orders increased 1.6% in March matching February’s revised 1.6% (previously 1.2%).  Durable goods, items typically lasting more than three years, increased 2.6% versus non-durable goods 0.5%. 

Shipments of nondefense capital goods excluding aircraft, a component that factors into GDP, decreased 0.8% after increasing 1.2% in February.  This may factor in to a slight reduction in GDP estimates and give the Fed room to hold off on a fourth-rate increase for this year. 

Lastly, ISM Non-Manufacturing declined to 56.8 from 58.8 in March and is the 99^th straight month of expansion (a read over 50).  All 18 non-manufacturing industries reported growth.  The tight labor markets and labor shortages led to the decline in the Employment Index as companies continue having difficulty finding qualified workers.  This number could point to a slowing in employment growth in Friday’s Nonfarm Payrolls report. 

• Business Activity 59.1 from 60.6
• New Orders Index 60.0 from 59.5
• Employment Index 53.6 from 56.6
• Supplier Deliveries Index 54.5 to 58.5
• Prices Index 61.8 from 61.5

The reversal theme is continuing again today.  After being down close to 40 points, 1.55%, the S&P 500 has rallied erasing all its loses as it bounced off support at the 200-day moving average @ 2614.  The S&P 500 is currently trading @ 2,635, unchanged on the day.  Bottom fishing in semiconductors and beaten down consumer staples stocks helped the Dow rally off its lows.      

There are several names in our model portfolio that are oversold, but the issue isn’t to buy or add to them, but rather when would the coast be clear.  There are so many issues that have little to do with fundamentals, and some potential economic issues as well, all pressuring bias to the downside.

Tweet

 

Home | Products & Services | Education | In The Media | Help | About Us | Disclaimer | Privacy Policy | Terms of Use | All Rights Reserved.