Thursday, February 20, 2014

19 Feb AMC - Market takes a turn after three-day up

Market Summary

Equities ended on their lows with the S&P 500 snapping its three-day win streak. The benchmark index fell 0.7% while the Nasdaq (-0.8%) lagged throughout the session. 

Stocks began the day with slim losses, but the Dow and S&P 500 were quick to erase the early weakness. For its part, the Nasdaq was unable to make a sustained move into the green. 

The S&P 500 climbed through the first hour of action, but the rally stalled with the index less than four points shy of its all-time intraday high of 1850.84. Shortly before midday, equities slumped to lows in a move that coincided with a headline from the International Monetary Fund reminding investors that global growth remains uneven and fragile with persistent downside risks. 

While the IMF headline presented a convenient excuse for the swift dive, the stock market was challenged with increasing resistance prior to the release. The Nasdaq was bouncing up against its flat line while influential sectors like consumer discretionary (-0.9%), financials (-1.2%), and industrials (-0.9%) underperformed. Once the headline hit, the earlier underperformers drove the remainder of the market lower. 

Eight of ten sectors ended in the red with financials registering the largest decline. Citigroup (C 48.19, -1.19) was the weakest performer among the majors while regional banks also endured significant losses. The SPDR S&P Regional Banking ETF (KRE 37.83, -1.09) fell 2.8%. 

Elsewhere, the discretionary sector slumped despite some M&A activity among luxury retailers. Signet Jewelers (SIG 93.65, +14.38) spiked 18.1% after announcing an agreement to acquire Zale (ZLC 20.92, +6.01) for $21 per share, representing a 41.0% premium to Tuesday's closing price. 

Also of note, the industrial sector was pressured by transports as The Dow Jones Transportation Average saw its second day of losses. The bellwether complex lost 1.3% and finished the session down 2.3% for the week. 

On the upside, energy and telecom services added 0.1% and 0.5%, respectively. 

Treasuries finished on their lows (10-yr yield +2 bps at 2.73%) with the bulk of the retreat coming after the release of the FOMC minutes from the January meeting. Although the minutes did not contain any major surprises, they did indicate that some officials said there should be a ‘clear presumption' in support of continued tapering in $10 billion increments. 

Participation was on the light side with 688 million shares changing hands on the floor of the New York Stock Exchange. 

Today's economic data included two reports: 
  • Housing starts fell 16% in January, from an upwardly revised 1.048 million (from 999,000) in December to 880,000. The consensus expected housing starts to fall to 963,000. There are some questions about how much of a role the adverse weather played in the decline. Surely the 67.7% decline in starts in the Midwest was partially weather driven. However, starts in the South, which was not that affected by the polar vortex, declined 12.5% in January. Furthermore, the hard-hit Northeast saw starts increase 61.9% in January. Normally, an exogenous shock -- such as the weather -- would result in a sizable rebound in the next month or two. However, after looking at all of the regional data, it is difficult to state with assurance that starts will return to the 1.00 million trend that they averaged in November and December. 
  • January PPI increased 0.2% after ticking up 0.1% in December. The consensus expected the PPI to increase 0.2%. The BLS reconstructed the PPI index for January. Instead of using a Stage-of-Processing method, the PPI is now calculated based on a Final Demand-Intermediate Demand system. Beyond the typical manufacturing data, the new index also includes price trends for services, government spending, and exports. Prices of final demand goods increased 0.4% in January after increasing by the same amount in December. Energy price growth softened, up 0.3% in January after increasing 1.5% in December. Much of the gain in the final demand goods index was due to a 2.7% increase in pharmaceutical preparations. 
Tomorrow, weekly initial claims and January CPI will be reported at 8:30 ET while January Leading Indicators and the Philadelphia Fed survey for February will both be released at 10:00 ET. 
  • Nasdaq Composite +2.6% YTD 
  • Russell 2000 -1.1% YTD 
  • S&P 500 -1.1% YTD 
  • Dow Jones Industrial Average -3.2% YTD

Market Internals

Leaders & Laggards

Technical Update

Next Day In View

Alvin's Commentaries

Both Dow & S&P500 started with a slight bullish bias and reversed at 10.45am all the way down to negative territory while Nasdaq struggled from the beginning but were not able to stay positive from the start. Volumes were only 618m shares traded last night. Financials were the laggers and energy barely stay positive. On the technical front, looks like the bears are ready to jump.

Market Call: DOWN
Date:20 Feb 2014

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