Market at a Glance 1/29/2015

By: Christopher Mistal

January 29, 2015

Psychological: Resilient. Despite frequent and numerous down days this month, Investor’s Intelligence Advisors Sentiment survey is still showing bulls at 53.1%. And why not, for all the volatility the market is still just a handful of percentage points from its all-time highs. Consumers are also in a good mood as falling gasoline prices have lifted confidence which is likely to lead to increased spending.

Fundamental: Solid. December’s employment report showed 252,000 net jobs added in the month while the unemployment rate declined to 5.6% and today weekly jobless claims fell to their lowest level in almost 15 years. Tomorrow we will see how the U.S. economy did in the final quarter of 2014. Expectations are for a mid-3 percent reading. Not quite as nice as the previous quarter’s 5%, but much better than the 2% it was stuck at. According to S&P Capital IQ, corporations are also doing reasonably well with a 74% earnings beat rate with slightly more than 20% of S&P 500 reporting so far.

Technical: Consolidating. For all the concern about volatility and January’s performance, DJIA, S&P 500 and NASDAQ are still consolidating the gains from their respective early-November breakouts. It has not been a textbook process as DJIA, S&P 500 and NASDAQ have all closed below their breakout levels and their 50-day moving averages, but they are attempting to bounce back again today. Should they fail to find support, then the next key level to watch would be the 200-day moving average, DJIA 17000, S&P 500 1975 and NASDAQ 4465.

Monetary: 0-0.25%. Once again the Fed has reminded us that it is taking a “wait and see” approach to normalizing interest rates. The only issue with this is; are they seeing the big picture? They acknowledged inflation is falling, but noted this was a transitory event due primarily to falling energy prices. At last check, the ex-food and energy price gauge was also falling. The Fed also cited improving labor market indicators. Sure, there are many of these, initial weekly claims, the headline unemployment rate, but they seem to overlook the fact that the U.S. labor participation rate is at its lowest level in decades. This would seem to imply far more slack than other metrics. The Fed’s assumption, based upon the data they choose to look at, is economic activity is solid, the labor market is improving and inflation will be on its way which will necessitate raising interest rates. This may not be entirely that accurate.

Seasonal: Tepid. The Best Consecutive Three Month Span, November to January, is coming to an end. February can be the weak link in the Best Six/Eight Months. Since 1950, February performance: DJIA +0.1%, S&P 500 –0.03%, NASDAQ +0.6% (since 1971). Pre-election-year forces do give February a modest boost DJIA +1.0%, S&P 500 +0.8% and NASDAQ +2.4%.