U.S. markets tried rebounding for the second-straight session following Wednesday’s run to higher highs but the gains faded throughout the session with the major indexes settling mixed.
Volatility was slightly subdued compared to recent sessions but the whipsaw action remains in place and will likely continue for the foreseeable future.
The Dow slipped 0.1% after trading to a high of 25,293 while closing below the 25,000 level for the 3rd-straight session. The S&P 500 sagged 0.5% following a morning run to 2,727 but has failed to hold 2,700 all week.
The Nasdaq was lower by 0.9% after testing a high of 7,170 but hełd the 7,000 level for the 2nd-straight session following the second-half weakness.
The Russell 2000 was up less than a point, or 0.05%, after peaking at 1,517 while holding the 1,500 level throughout the day.
Industrials and Financials showed some strength after rising 0.2% and 0.1%, respectively, but were the only sectors that closed in positive territory.
Energy and Technology led to the downside with losses of 1.7% and 1.3% while Materials fell 0.9%.
Total Q4 results from just over half of the S&P 500 members combined have accounted for over 55% of the index’s total market capitalization.
Total earnings for these companies are up 15.9% from the same period last year on 9.1% higher revenues, with 82% topping EPS estimates and 79.8% beating revenue estimates.
Total Q4 earnings for the Tech sector companies are up 28.4% from the same period last year on 8.7% higher revenues, with 90.9% beating EPS estimates and 97% topping revenue estimates.
The overall theme from Q4 earnings season is one of all around strength, with strong earnings and revenue growth and a very high proportion of companies beating estimates.
More importantly, estimates for the current period have been notably going up.
Global Economy – European markets were higher across the board for the first time in 7 sessions with the Belgium20 zooming 2.5% to led the way. The Stoxx Europe 600 soared 2% and UK’s FTSE 100 surging 1.9%. France’s CAC 40 jumped 1.8% and Germany’s DAX 30 rallied 1.6%.
The European Commission raised its Eurozone 2018 GDP forecast to 2.3% from a 2.1% estimate in November and hiked its Eurozone 2018 inflation forecast to 1.5% from 1.4%.
German December industrial production dropped 0.6% month-over-month, topping expectations for a decline of 0.7%.
Asian markets were mixed with Australia’s S&P/ASX 200 gaining 0.8% and Japan’s Nikkei adding 0.2%. South Korea’s Kospi sank 2.3% and China’s Shanghai declined 1.8%.
Hong Kong’s Hang Seng gave back 0.9%.
Japan December labor cash earnings rose 0.7% year-over-year, stronger than expectations for a rise of 0.5%.
The MBA Mortgage Applications Composite Index was up 0.7% for the week ending February 2nd with a flat purchase index and 0.9% gain in the refinancing index.
The average 30-year fixed mortgage rate jumped 9 basis points to 4.50%, which was the highest level since April 2014.
December Consumer Credit checked in at $18.4 billion and below expectations of $20 billion.
Market Sentiment – Dallas Fed Kaplan downplayed the recent stock market dive by saying that market corrections are healthy. He said that the declines came amid historically high market valuations, and that the losses don’t have implications for the underlying economy.
New York Fed Dudley didn’t discuss policy or the economy as his comments were mostly centered on banks and said he doesn’t believe there will be a large deregulatory swing.
He believes there’s been significant progress in reforming bank culture, but more needs to be done as bank regulations are not a substitute for improving culture.
Chicago Fed Charles Evans said the economy is firing on all cylinders and has plenty of momentum but his concerns over low inflation persist.
He said policy should remain on hold until midyear in order to better assess incoming inflation data. He forecasted growth of 2.5%-2.75% this year, with roughly 0.4%-0.8% of that coming from tax reform, with growth slowing in subsequent years.
As far as inflation goes, Evans mentioned core prices are running around 1.5% and continue to undershoot the FOMC’s 2% objective. He expects a gradual rise in prices over time, getting to the target by late 2019 but hinted of rising prices occurring now.
He said if inflation accelerated, he would support further tightening.
Harker, Kashkari, and George will talk about the economy on Thursday.
The iShares 20+ Year Treasury Bond ETF (TLT) traded to a high of $120.32 in the opening minutes with lowered resistance at $120.50-$121 holding.
The tumble to $118.56 ahead of the closing bell keeps lower support levels at $118-$117.50 in play.
Market Analysis – The PowerShares QQQ (QQQ) traded up to $163.55 shortly after the opening bell with lowered resistance at $163.50-$164 holding.
Continued closes above $162.50 would be a bullish signal a possible near-term bottom has been set. The close back below the 50-day moving average was slightly bearish with continued risk to backup support at $157.50-$155 if $160 fails.
RSI closed above shaky support at 40 with risk to 35-30 on another move below this łevel. Resistance is at 50 and prior December support levels.
The Energy Select Sector Spider (XLE) is trying to find a near-term bottom following yesterday’s continued backtest to $67.90. December support at $68 held with risk to $67.25-$67 and the 200-day moving average on a close below this level.
The opening rebound north of $71 this morning faded throughout the session with near-term resistance at $69.75-$70 getting stretched. Continued closes above the latter would be a slightly bullish signal.
RSI is trying to hold August support at 30 with a close below this level signaling additional weakness. Resistance is at 40 and prior November support levels.
All the best,
Roger Scott