Markets, Economy

Weekly Kickstart (04/25/2016-04/29/2016)

4/25/16 8:00 AM

iStock_000000499785_Small-1Stocks continued higher last week, with the S&P 500 rising by 0.52 percent. This solid gain left the benchmark index up 2.33 percent 2016-to-date and just 1.84 percent below the record high hit in May of last year. In fact, the S&P 500 has surged by more than 15 percent since February’s panic lows and if one accounts for dividends (total return), then the S&P 500 has already risen to a new all-time high. However, many traders have not been able to take full advantage of this substantial rally in the stock market. This is evidenced by a recent study on fund flows from Bank of America Merrill Lynch which found that hedge funds, institutional investors, and private clients all became net sellers of U.S. equities in early February and have remained so until just recently. This likely happened because many market participants were initially skeptical of the rebound and expected equities to eventually roll back over. Since a reversal never occurred, many traders with bearish bets were ultimately forced by the continued market melt-up to cover their shorts, thus contributing to the sharp moves higher seen earlier this month. Such issues, though, are less of a problem for retirement investors who understand that persistent and long-term participation in the market, combined with dollar-cost averaging, can enable them to benefit from rallies and turn drawdowns into opportunities. As always, we are here to help with any questions you may have.


Short-covering can only fuel a rally for so long, and the once relentless uptrend in the stock market appeared to lose a bit of momentum toward the latter part of last week. One possible reason for this might have been the string of disappointing reports released on first quarter corporate earnings. For example, Caterpillar, often viewed as a global economic bellwether, reported large profit declines in the first quarter due to weak equipment sales, and the tech giants Microsoft and Google both released disappointing Q1 earnings data as well. On the bright side, positive quarterly profit reports from Visa and General Motors suggest that the American consumer is still doing just fine. There were not a lot of market-moving reports on the domestic economy released during the past five trading sessions but to recap what we did learn last week, the positives included that mortgage and refinance applications lifted, existing home sales rose, and the number of Americans making first-time claims for unemployment benefits fell to a new multi-decade low. As for the negatives, consumer “comfort” declined, homebuilder sentiment moderated, growth in housing starts and building permits disappointed forecasts, and measures of both regional and national manufacturing activity deteriorated. This week the pace of economic data picks up with lots of important reports on housing, manufacturing, employment, consumers, and wage growth scheduled to be released, along with the latest announcement on monetary policy from the Fed on Wednesday and the first official estimate of first quarter U.S. gross domestic product (GDP) growth due out this Thursday.

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Sources: Econoday, Bloomberg, WSJ, Twitter, BofAML, ValueWalk, Advisor Perspectives (DShort), et al

Post author: Charles Couch