It’s too bad the trading week didn’t end Wednesday.

Major stock-market indexes finished the week mixed, and sharply below midweek levels, which came within a whisker of previous all-time highs. Instead, investors took profits Thursday, and especially Friday, on the rally that started in late May. Low trading volume exacerbated the decline. The Dow Jones Industrials rose 58 points, or 0.3%, on the week, to 17,865.34. The Standard & Poor’s 500 index lost and finished at 2096.07, although it set a new 52-week closing high Wednesday of 2119.12. The Nasdaq Composite fell 1%, to 4894.55.

European markets weakened on concerns about the coming Brexit vote, which will determine whether the United Kingdom leaves the European Union. Bond markets around the world rose as buyers sought a refuge from uncertainty.

Investors are confused by a plethora of polls with conflicting results. Some surveys show a majority will vote to leave the EU, but others indicate the country will remain. Although rising crude prices helped to propel stocks early in the week, oil fell sharply in the final two sessions.

Stocks fell in London, as did the British pound, and the anxiety migrated to U.S. markets on Friday, says Michael Shaoul, chairman of Marketfield Asset Management.

“You saw a lot of yield-chasing going on,” says David Seaburg, head of sales trading at Cowen. German, U.K., and Japanese government debt yields hit all-time lows Friday, making U.S. Treasuries look relatively attractive, he adds.

Big institutional investors, like hedge funds, haven’t chased the market higher, says Seaburg. Instead, quantitatively managed funds and passive index funds have driven the latest rally.

Brexit was an excuse for profit-taking, says Steve Massocca, portfolio manager for Wedbush Equity Management. He doesn’t see a possible U.K. exit affecting the U.S. much, “but given how much and given how fast the market had risen recently, it was a good excuse to take profits.”

Marketfield’s Shaoul says U.S. stocks’ inability to break through previous highs isn’t particularly worrisome short- term. Eventually, however, if the market isn’t able to get through, it will become an issue, says Shaoul, who puts an important S&P 500 support level at around 2085.

Since February 2015, each of the past eight times that the S&P 500 approached the 2130 level, “it has rolled over,” says Massocca. He calls this range top the “valuation ceiling,” where earnings growth isn’t enough to get stocks higher “but the Fed’s low monetary policy protects on the downside.” The Fed isn’t likely to raise interest rates this week, he adds.

(Source: Barrons Online)

Buoyed by strong economic data, stocks rose more than 2% on the week, but investors had to wait until late Friday to be sure they’d have a relaxing long weekend.

A perfectly boring week was at risk of becoming exciting on Friday when Federal Reserve Chair Janet Yellen sat down with a Harvard professor for a cozy, low-stress “conversation.” Nothing involving the Fed is low-stress these days, given that Wall Street is increasingly torn over whether it will raise interest rates at its June 14-15 meeting. Traders listened closely, letting their Lexuses idle in the garage before racing to the Hamptons.

They needn’t have waited. Yellen only said that a rate hike will probably be appropriate “in the coming months.”

Few investors hung around once they heard that; Friday’s trading volume was the lowest since March. The Dow Jones Industrial Average rose 372 points on the week, or 2.1%, to 17,873.22. The Standard & Poor’s 500 index rose 47 points to 2099.06. The Nasdaq Composite rose 164 points, or 3.4%, to 4933.50.

Oil prices rose on the week, with crude futures briefly jumping above $50 for the first time in seven months before ending the week at $49.33.

Durable goods orders also jumped 3.4% in April, the Commerce Department said, and the Atlanta Fed revised second-quarter GDP growth expectations to 2.9% from its prior estimate of 2.5%. Better economic data raise the chances of a June Fed hike—still considered unlikely—but also boosts the chance that the economy would grow despite it.

Investors remain lukewarm on stocks, which still trade at above-average valuations despite weak quarterly earnings. The American Association of Individual Investors sentiment survey indicated that only 17.8% of investors are bullish, the lowest level since 2005. That’s not to say they’re bearish either. It’s more like they’re aggressively neutral, like a man wearing beige Gap khakis and driving a Volvo. The number of investors who said they were neutral rose 6.3 percentage points last week to 52.9%, the highest level since 2003.

That could actually be good news. “Bull markets tend to die with at least some degree of optimism, but what we are seeing today is apathy,” writes Keith Lerner, chief market strategist at SunTrust, adding that “markets are unlikely to have a major decline with so many investors already positioned for one.”

(Source: Barrons Online)

Stocks fell last week on concerns about U.S. retailing, commodity-price weakness, credit data in China, and a stronger dollar. The last hurt large-capitalization stocks, costing the Dow Jones Industrial Average 1.2%.

Investors were perplexed when the Commerce Department said Friday that April retail sales had jumped 1.3%, right after several big department-store operators had reported poor first-quarter numbers. Separately, consumer sentiment in early May improved sharply, data showed.

Macy’s (ticker: M), Kohl’s (KSS), and J.C. Penney (JCP) all reported much lower first-quarter sales last week, and offered generally unappetizing guidance. The department-stores group slumped 16%, with Macy’s down 17%, to $31.21.

The greenback, which has been soft this year, began to move up again in May. That hurt shares of big companies, which tend to have substantial overseas sales. The Dow industrials lost 205 points on the week, to 17,535.32. The Standard & Poor’s 500 index fell 10.5 points to 2046.61, and the Nasdaq Composite dropped 0.4% to finish at 4717.68.

The retail data seem to point up a shift in consumer dollars from malls to online spending, says Brian Lazorishak, a portfolio manager with Stack Financial Management in Whitefish, Mont. While some investors took solace from the surprisingly positive government figures, bears noted the numbers measured the past, while the downbeat guidance from department stores was forward-looking.

Chinese steel futures fell more than 10% last week and are down about 25% from a peak in April, and there are signs the selloff is spreading to other global markets and other commodities. Additionally, Chinese credit data showed a sharper drop than expected in April in most lending categories.

The market has been trading in a range around 2100 for a while, and “looks as if it is struggling for additional multiple expansion” to push up the indexes, says John Brady, a sales trader at R.J. O’Brien. He sees the market moving sideways short-term, with the Federal Reserve ever ready to prop it up with dovish talk about rate-hike expectations.

Lazorishak says there is enough technical strength to give the rally the benefit of the doubt, but it looks like it is running out of steam just as the market enters a traditionally weak season.

(Source: Barrons Online)

Stocks fell last week in response to underwhelming quarterly earnings reports and disappointing economic data from the U.S. and China. Large-capitalization stocks outperformed small-caps. Fears about slowing global growth clipped cyclical stocks in sectors such as energy, mining, and industrials, which had led the market since the Feb. 11 low.

The Dow Jones Industrial Average eased 33 points on the week, to 17,740.63. The Standard & Poor’s 500 index fell 8 to 2057.14. The Nasdaq gave up 0.8% to finish at 4736.16.

The Labor Department said Friday that nonfarm payrolls rose 160,000 last month, below expectations of 205,000 additions and the lowest number of jobs added in seven months. The unemployment rate was unchanged at 5%. Wages rose a strong 2.5%. Separately, Labor said U.S. first-quarter productivity, or output per worker, declined 1%.

Robert Pavlik, chief market strategist at Boston Private Wealth, says the primary cause of market weakness was a drop in April manufacturing numbers, both in the U.S. and China, released at the beginning of the week. Continued softness in the U.S. dollar had been helping cyclicals, many with sales generated overseas. But “all of a sudden,” he says, the falling dollar was taken by some investors as a sign of U.S. economic malaise.

The data showed three things, none of which are good for cyclicals, says Jim Tierney, portfolio manager at AllianceBernstein: “The U.S. economy is pretty darn sluggish; wage inflation is creeping higher; and productivity is terrible.”

The deterioration in first-quarter earnings—and not just among energy companies—was also a factor, says William Nichols, a managing director at Cantor Fitzgerald. Companies are beating earnings expectations that had been lowered, but the top line remains challenged, he adds.

Many companies are topping earnings-per-share expectations, but the percentage of those beating revenue estimates is 53%, below the five-year quarterly average.

Now that the reporting season is just about done, investors will turn their focus to the June 15-16 Federal Open Market Committee meeting. Although a rate hike isn’t expected, they’ll be parsing Fed officials’ commentary before then. The market could tread water ahead of the meeting.

(Source: Barrons Online)

Equities fell more than 1% as the major indexes sold off in the latter half of the week. Tech stocks took the brunt of the damage. Several factors combined to disappoint investors, including weak U.S. economic data, a continuation of lousy first-quarter earnings from tech companies, and a Bank of Japan decision not to introduce new stimulus.

Tech stocks, which lost 3.6% last week, were particularly battered by fallout from Apple ’s first quarterly sales drop in 13 years. Apple shares declined 11% to $93.74. First-quarter U.S. gross domestic product, out Thursday, wasn’t encouraging, either, with GDP expansion a sluggish 0.5% in the period, weaker than forecast – see additional information in the “Heads Up” section.

Investors were treated to the relatively unusual phenomenon of Europe growing faster than the U.S. Euro-zone first-quarter GDP rose 0.6%, a blistering rate by Continental standards, and higher than expected. That relative disparity drove the U.S. dollar down some more.

For the past 18 months, investors have bemoaned the extraordinarily strong greenback, which depresses overseas sales at U.S. multinationals. Last week, however, greenback weakness became an issue. To the extent that it indicates that U.S. expansion is slow compared to the rest of the world, investors don’t like it.

Last week, the Dow Jones Industrial Average lost 230 points to 17,773.64 or 1.3%. The S&P 500 index fell 26 to 2065.30. Tech stock weakness again hit the Nasdaq, which fell 2.7% to 4775.36.

A whiff of global growth fears returned on the dollar woes, says John Canally, an investment strategist. The concern that central banks are “out of bullets” also hasn’t gone away, he says. Unlike in the January-February market downdraft, however, commodity prices, oil especially, are being supported by the lower dollar.

Outside the tech sector, reactions to earnings were relatively muted, adds Edward Perkin, chief investment officer at Eaton Vance Management. In tech, the stocks that are being punished the most are the “heavily owned issues,” like Apple and Alphabet (GOOGL), where “good earnings numbers weren’t good enough,” if they fail to meet expectations.

Though the energy sector should be less of a drag on earnings in the future, says Joseph Amato, chief investment officer of Neuberger Berman, “…I wouldn’t chase the market at these levels until there’s greater clarity on earnings.”

Since last summer, the market has attempted two major rallies that have failed to surpass all-time highs set in May 2015. This latest one has seen some strong breadth. Even so, “the momentum just isn’t there,” says Perkin, and we agree.

The second-longest bull market in history is stalled, waiting for a catalyst, and that will be earnings growth. If the market is convinced profits will expand, it’s party on. Without it, chances are the S&P 500 index will continue to shilly-shally roughly between 2000 and 2100.

(Source: Barrons Online)

The U.S. stock market finished higher last week, coming within a whisker of all-time highs but failing to push through. Trading was active and U.S. economic data was mixed.

Worse-than-expected earnings from tech stocks like Microsoft (ticker: MSFT) and Alphabet (GOOGL), parent of Google, pushed down the tech sector, which fell 2% Friday.

The Dow Jones Industrial Average gained 106 points or 0.6%, to 18,003.75. The Standard & Poor’s 500 index advanced 11  to 2091.58. The S&P 500 hit 2111 intraday Wednesday, less than 1% below the 2131 record of last May. Tech-stock weakness hit the Nasdaq, which fell 0.7% to 4906.23. The Russell 2000 jumped 1.4% to 1146.69.

Last week’s volatility and failure to punch through the old high reflects an “internal debate on the Street on whether the market is overvalued or fairly valued,” says Malcolm Polley, president of Stewart Capital Advisors. Undervalued it’s not, he adds.

With a market price/earnings ratio of 17 times, “you can make the case that if profit margins hold up, profits grow, and rates don’t go up, the market is adequately valued,” he adds. Only higher earnings and stable rates will get it higher, he adds, but rates are going up, and the market’s seasonally weak summer season is coming up.

We agree with Polley’s view, but it must be noted that market breadth—the number of stocks advancing versus those declining—and other underlying factors are as bullish as they’ve been since a year ago.

Also, as James Paulsen, chief investment strategist for Wells Fargo Capital Management, points out, defensive stocks have been giving way. The focus has been on new highs, but the leadership change is important as an indicator that the market could soon make another try for a new high.

Last week utilities, staples, and telecom stocks fell. Those were the best performers in the first quarter but are so far the worst in the second. Other bullish signs include the trend of small caps, cyclicals, and multinationals beating, respectively, large caps, defensive, and domestic stocks.

Part of the market-valuation debate is influenced by the earnings reports. On that front, “there isn’t much clarity,” yet, says J.J. Kinahan, chief strategist for TD Ameritrade. For the multinationals it was a mixed picture, he adds, with McDonald’s (MCD), Caterpillar (CAT), and IBM (IBM) showing weakness overseas. It suggests consumers outside the U.S. are doing less well than reports indicate, he adds.

On Wednesday the Federal Reserve Open Market Committee meeting ends, but no rate changes are expected. The U.S. first quarter GDP number will be released Thursday. That also marks the day when the bull market that began in March 2009 will become the second-longest in history, at 2607 days, topped only by the technology bull of October 1990 to March 2000.

(Source: Barrons Online)

A rally in bank shares and reassuring news about China’s economy helped push the major U.S. stock indexes up about 2% last week. Trading volume was moderate, and market breadth, which measures rising issues minus decliners, hit an all-time high.

Financial stocks rose 4% on the week, abetted by the release of better-than-expected first-quarter earnings reports from JPMorgan Chase and other major banks. Nevertheless, the sector remains the worst performer on the year, down 4%.

The Dow Jones Industrial Average rose 321 points, or 1.8%, for the week, to 17,897.46. The Standard & Poor’s 500 index tacked on 33 to 2080.73. The NASDAQ gained 1.8%, to 4938.22.

China’s statistics bureau said first-quarter gross domestic product expanded 6.7%, down from 6.8% in the fourth quarter, but higher than investors had feared. The country’s March retail sales and industrial output both rose.

“China’s a focus for a lot of investors,” says Jason Pride, director of investment strategy at Glenmede Investment and Wealth Management. After the market’s February freak-out about the Middle Kingdom drove stocks down, the most recent data showed some economic stabilization and eased worries, he notes.

Factors that had previously hurt the market were absent. There wasn’t a lot of back and forth chatter from Federal Reserve officials last week about the pace of interest-rate hikes. That contributed to a lessening of anxiety about the Fed’s intentions, says Pride. Investors were also braced by flat to higher energy prices. U.S. hydrocarbon production and inventories are dropping, which could lead to higher oil prices. U.S. bank first-quarter results were better than expected, and among investors, “less bad is good,” says Pride.

Investors care more about figures that are “better or worse than expected” than about results that are absolutely good or bad, says Liz Ann Sonders, chief investment strategist at Charles Schwab.

The market knows it’s going to be a tough first-quarter earnings-reports season, with S&P 500 profits expected to fall by about 9%, or 4% excluding energy companies.

“What will be more important is the commentary given by corporate managements” about current and future conditions, says Terri Spath, chief investment officer of Sierra Investment Management. If companies don’t shave guidance, even lower earnings could be a support for share prices.

Better breadth bodes well for the rally. Unlike the stock rallies seen last September and November, this one is “much better looking” breadthwise, according to Sonders. “There is a greater participation by a broader number of stocks.”

Spath notes that “90% percent of stocks are above their 200-day moving average.”

Still, this move probably won’t be sustainable without an eventual return to profit growth by Corporate America. First and second quarter S&P 500 earnings are expected to be negative, but perhaps “the market is sniffing out a rise in the second half,” Sonders says.

The S&P 500 hasn’t made a new high since last May. But with the NYSE daily cumulative advance-decline line at a new high, things are looking brighter for the bull.

(Source: Barrons Online)

In a push-me-pull-you week of light trading, the major equity indexes finished down 1%. A strong rally early Friday pared losses for a time but fizzled. Although energy stocks rose, poorly performing bank stocks didn’t help matters.

There was some profit-taking after the previous week’s 2% rise, and stocks fell Thursday as the Japanese yen rose, despite the Bank of Japan’s efforts to push it lower with a negative interest-rate policy. That dented investor confidence in the ability of central banks to boost global growth, market observers say.

Rising oil prices helped bolster stocks, as they did after February’s lows. Oil rose 8% on the week to $39.72 per barrel, giving solace to those who believe the commodity is finally stabilizing. The energy-stock sector was the best performer last week, up more than 2%. Financials fell 3%.

The Dow Jones Industrial Average gave up 216 points, or 1.2%, on the week, to 17,576.96, and the Standard & Poor’s 500 index fell 25 to 2047.60. The Nasdaq dropped 1.3% to 4850.69.

Investors had plenty of conflicting data to absorb, says Kenneth Polcari, director of NYSE floor operations for O’Neil Securities. “The conversation turned around the yen trade,” and the fact that the currency’s rise is testing the Bank of Japan’s credibility, he says. It’s no surprise, then, that bond prices rose on the week. The market is in a trading range around 2050, says Polcari. “We haven’t broken out of it, but we haven’t broken down,” he adds.

Macroeconomic factors have influenced the market over the past few weeks, but when first-quarter earnings start flowing in this week, there will be more stock-specific activity, says David Lefkowitz, senior equity strategist at UBS Wealth Management Americas. Earnings are likely to be better than expected, although that will mean “less bad,” says Randy Frederick, managing director at Charles Schwab. “It’d be nice to see revenue growth,” he says.

It’s going to be the fourth quarter in a row of flat or down earnings, Lefkowitz says. Earnings could pick up in the second half of 2016, when head winds from the dollar’s rise and crude’s fall start to moderate in the quarterly comparisons. “We’ll remain in a trading range until there’s greater conviction that we’ll see a resumption of earnings growth,” he says.  In addition to the start of profit reports this week, investors will see key U.S. economic data on inflation and retail sales beginning midweek.

(Source: Barrons Online)

Stocks rolled almost 2% higher last week, spurred by dovish comments on interest rates from Federal Reserve Chair Janet Yellen. Goldilocks economic data—not too hot to force an interest-rate hike soon, nor too cold to make investors fret about slowing U.S. growth—also gave equities a lift.

Yellen’s remarks on Tuesday that the Fed should proceed cautiously with respect to rate hikes put investors into a safe space, and stock prices jetted up from there. After a poor start to 2016, the major indexes are just a few percentage points below all-time highs.

As has been the case for months, comments from various Fed officials have bounced between dovish and hawkish, and have driven the market first one way and then another. Positive jobs data and a weaker dollar—down about 4% this year—also supported the rally.

The Dow Jones Industrial Average jumped 277 points, or 1.6%, to 17,792.75 last week, and rose 1.5% in the first quarter. The Standard & Poor’s 500 index rose 37 on the week to 2072.78, and 0.8% in the first quarter. The health-care sector fell 6% in the first quarter, the worst performer. The Nasdaq gained 3%, to 4914.54, last week.

While there has to be concern with the market’s overreliance on Fed chatter, one good sign last week was that shares rose even though oil prices fell, the first time that has happened in many weeks. Crude dropped 7% on the week, to $36.79 per barrel.

On Friday, the Labor Department reported higher-than-expected March nonfarm payrolls. The unemployment rate ticked up to 5% from 4.9%, but that was because more Americans entered the labor force, a positive indicator. Separately, U.S. manufacturing data suggested that the economy is expanding again.

The employment report was decent, but Yellen’s comments did a lot to reassure investors that the Fed intends to tighten monetary policy gradually, says Peter Jankovskis, co-chief investment officer at Oakbrook Investments.

Still, how long will the Fed be able to prop up the market? And, asks John De Clue, chief investment officer of the Private Client Reserve of U.S. Bank, will the Fed’s continued reinforcement of a “gradual” rate rise turn into a “one-trick pony”? At what point, he adds, does the market interpret Fed dovishness as symptomatic of an economy that isn’t getting sustainably stronger? If that happens, says De Clue, it will make investors worry about corporate profit growth.

In the long run, investors want to see interest-rate hikes that indicate the U.S. economic engine is revving strongly enough to withstand higher rates, De Clue says.

(Source: Barrons Online)

Dovish indications from the Federal Reserve drove equities more than 1% higher last week. The major indexes moved into the black for the first time this year and within shouting distance of all-time highs. Rising oil prices again added fuel to this fifth consecutive weekly rally, while a soft dollar helped big-cap stocks outperform.

After a poor start, it was party on once the Federal Open Market Committee meeting ended on Wednesday. FOMC projections suggested it would raise rates just twice this year, or half a percentage point of tightening in all, instead of the previously expected four hikes, for a full percentage point increase.

Meanwhile, oil rose 2%, to $39.44 per barrel, and flirted briefly with a 40 handle for first time since early December. That has gone a long way to easing fears about global recession.

The Dow Jones Industrial Average tacked on 389 points, or 2.3%, to 17,602.30 last week, while the Standard & Poor’s 500 index rose 27 points, to 2049.58. Both are only 4% below record highs. The Nasdaq increased 1%, to 4795.65.

“Apparently, we are drinking from the never-ending fountain of near-zero interest rates again,” says Kimberly Forrest, senior equity analyst at Fort Pitt Capital Group. The weakening greenback helped the major indexes’ megacaps, which benefit the most from a declining dollar.

“Markets have a short memory when it comes to the bad stuff,” says Steve Sosnick, senior trader at Timber Hill. Complacency seems to have returned, and “that frightens me the most,” he adds. The situation wasn’t as dire as the market had it at February lows, but things aren’t as rosy now as they were the last time the market was at these levels, he says.

The market’s valuation, at 17 times consensus analyst earnings-per-share estimates for 2016, looks stretched again, given that easy monetary policy and rising oil prices—not earnings growth—are responsible.

The multiple that the market pays for stocks will eventually reconnect to lackluster—or worse—earnings-per-share figures. The U.S. isn’t in a recession, but it isn’t growing like it’s capable of, adds Fort Pitt’s Forrest.

We could have more good times until first-quarter results begin to be released in three to four weeks. However, the S&P 500 index’s first-quarter EPS are seen declining 7% after a 3% fall in the final quarter of 2015.

One way the rally could roll on is if value stocks, which have lagged behind growth stocks in the seven-year bull market, pick up the rally baton. Growth stocks, however, would have to at least remain flat.

(Source: Barrons Online)