U.S. markets were sluggish throughout Monday as Wall Street braces for the the busiest week of the 1Q earnings season.
More than 140 S&P 500 companies are announcing numbers with nearly a third of the Dow components reporting earnings throughout the week.
Economic news was light with oil prices soaring to the highest levels of the year. Volatility showed some nervousness but held near-term and major resistance at the 12.50 level.
The Nasdaq gained 0.2% after tapping a high of 8,017. Lower resistance at 8,000-8,050 was cleared and held to keep 8,100-8,150 and all-time highs in the play.
The S&P 500 nudged up 0.1% following the run to 2,909.
Near-term resistance at 2,915-2,925 held with a close above the latter leading towards 2,940-2,950 and fresh lifetime highs.
The Russell 2000 gave back 0.4% after testing an intraday low of 1,554.
Fresh and upper support at 1,560-1,550 and the 50-day moving average was breached but held with a move below the latter signaling additional weakness.
The Dow dipped 0.2% following the intraday backtest of 26,458.
Near-term and upper support at 26,500-26,250 held into the closing bell with a close below the latter being a continuing bearish signal.
Energy led sector strength after zooming 2.1%. Communication Services and Technology were higher by 0.5% and 0.2%, respectively.
Real Estate sank 1.1% to pace sector laggards. Materials fell 0.7% and Consumer Discretionary was lower by 0.3%.
Earnings results have turned out to be better than many in the market had feared following the very notable cuts that estimates have suffered over the last 3-4 months.
Analysts came into the 1Q season with low expectations, forecasting a 4.2% drop in profits. However, the majority of corporate earnings reports have topped expectations with many of the S&P 500 companies that have posted earnings, surpassing estimates.
Of the 77 S&P members that reported Q1 results, 79.2% have topped EPS estimates and 54.5% have beaten revenue estimates. A big concern though is that total earnings growth is barely in positive territory at 0.2% on 2.5% higher revenues.
Total earnings and revenues were up 13.9% and 5.4%, respectively, for the same group of companies in the preceding quarter.
More importantly, estimates for the current Q2 period have been coming down as companies have been reporting Q1 results and sharing their outlooks going forward.
Total Q2 earnings for the S&P 500 index are expected to be down -0.3% from the same period last year on 4.9% higher revenues, with the growth pace steadily coming down in recent days.
One piece of good news is the pace and magnitude of negative revisions to Q2 estimates is lower than what the market had been seeing at the comparable period in the preceding quarters.
Overall, 1Q earnings are coming in slightly better, so it’s removed some of the concern from the market. With that said, the results don’t seem to be impressive enough to move individual investors off the sidelines.
Global Economy – European markets were mixed with the Stoxx 600 Europe closed for the holiday. Germany’s DAX 30 was higher by 0.7% and France’s CAC 40 climbed 0.3%. UK’s FTSE 100 slipped 0.2% while the Belgium20 added 0.1%.
Asian markets settled mixed with Australia’s S&P/ASX 200 and Hong Kong’s Hang Seng closed for the Easter Monday holiday. Japan’s Nikkei edged up 0.1% and South Korea’s Kospi gained a half-point, or 0.02%.
Meanwhile, China’s Shanghai stumbled 1.7% after the country announced it will pursue structural changes to its economy, rather than add stimulus.
Politburo, the 25-member ruling body of China and headed by President Xi Jinping, reviewed China’s growth in the first quarter and concluded that market confidence has returned and economic performance was better than expected.
Chicago Fed National Activity Index improved 0.16 points to -0.15 in March, matching expectations, after falling 0.07 points to -0.31 in February.
January was revised to -0.24 from -0.25 previously. The 3-month average rose to -0.02 from February’s -0.18, while January was nudged up to 0.01 from unchanged.
Existing Home Sales fell 4.9% to 5,210,000 in March, a little below forecasts of 5.3 million. Single family sales declined 4.9% versus the 12.6% prior jump in February.
Condo/coop sales dropped 5.3% from unchanged.
The months’ supply of homes rose to 3.9 from 3.6. The median price climbed to $259,400 after edging up to $250,100 last month.
Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) fell for the first time in 3 session following the backtest to $122.25.
Lower support at $122.50-$122 and the 50-day moving average held with risk $121.50-$121 on a close below the latter.
Lowered resistance is at $122.50-$123.
Market Analysis – The Spiders Dow Jones Industrial Average ETF (DIA) has been in a 4-session holding pattern with Monday’s low tapping $264.44. Current and upper support at $264.50-$264 was breached but held.
A close below the latter would be a slightly bearish signal with risk towards $263-$262.50.
Near-term resistance is at $265.50-$266.
Continued closes above the latter would confirm a possible run towards $267.50-$270 and all-time highs.
RSI is in a slight downtrend with support at 65-60. A close below the latter would signal additional weakness towards 55-50 with the latter holding since mid-January.
Resistance is at 65-70 and the latter representing the late February peaks.
Continued closes above the 70 level would be a bullish development for additional strength towards 75-80.
The Utilities Select Spider (XLU) fell for the 4th-time in 5 sessions following the intraday pullback to $57.12.
Near-term and upper support at $57.25-$57 was breached with the 50-day moving average holding into the closing bell.
A move below $57 would be a bearish signal for additional weakness towards $56.50-$56 and early March support levels.
Resistance is at $57.50-$57.75. Continued closes back above $58 would be a more bullish development and signal a possible near-term bottom.
RSI is in an downtrend with support at 40 and the mid-January low.
A move below this level opens up risk towards 35-30. Resistance is at 50 and prior support from earlier this month.
All the best,
Roger Scott.