Market at a Glance

Market at a Glance - 2/25/2016

By: Christopher Mistal

February 25, 2016

Psychological: Bearish. According to the most recent Investor’s Intelligence Advisor Sentiment survey, bearish advisors are still the majority even though their number declined slightly from 39.8% last week to 35.7% this week. Bearish sentiment had nearly reached the level from the fall of 2011 in mid-February. At that extreme then a bounce seemed likely and that is what has transpired. Further market follow through is likely needed for bulls to regain their lost confidence.

Fundamental: Resilient. The U.S. labor market continues to make gains even as the global macro picture is tepid. The U.S. Unemployment Rate slipped to 4.9% in January as 151k new jobs were added. Corporate earnings could see some relief from the strong U.S. dollar headwind in Q2 and beyond, provided the dollar remains range bound. Commodity and energy prices are still a drag for suppliers, but not so much for consumers. If oil can find stability, which it looks like it is trying to do, the outlook for commodity and energy suppliers would also improve.

Technical: At Resistance. DJIA and S&P 500 have managed to poke through resistance around their respective early February highs however; NASDAQ and Russell 2000 have not. Today DJIA and S&P 500 are fighting to reclaim their 50-day moving averages. Until NASDAQ and Russell 2000 can catch up and take the lead, any meaningful move higher from current levels is less likely. The current bounce has also pulled Stochastic, relative strength and MACD indicators near overbought levels. Absent tech and small-cap support, a pause and/or retest of February’s lows is likely.

Monetary: 0.25-0.50%. Next Fed meeting is March 15-16 and it includes the Summary of Economic Projections and a press conference by the Chair. Based upon CME Group’s FedWatch Tool, there is currently just a 6% probability of a rate hike at this meeting. Interest rates are still historically low, just not as low as they are in other places or even the recent past. Overall, policy is still highly accommodative; it just does not “feel” like it.

Seasonal: Bullish. Normally a decent performing market month, March is just average in election years with advances 62.5% of the time with a 0.6% average DJIA gain since 1952. S&P 500 has also advanced 62.5% of the time since 1952, but gains have been slightly better at 0.8%, on average. However, March is NASDAQ’s second worst month of the election year (since 1972). It is also the Russell 1000 and Russell 2000 second worst month by average performance in election years (since 1980).