The Dow was up triple digits (headline today), oil surges 6% (another headline today), stay bullish on stocks (another headline), bad news turns good for stimulus addicted market (another headline). Is there any wonder investors are confused? The last is the most interesting to me as it states the rational behind the current market driver… stimulus. When it looks as if the Fed will act on raising interest rates, stocks stumble. When the data leans towards the cut being delayed, stocks rally. The bad news from jobs on Friday was twisted to good news relative to stalling the Feds actions on interest rates. Throw in the weaker dollar and rising oil prices and you pretty much have the rational behind the markets rally on Monday. The lower open didn’t last as stocks moved straight up at the open from the beginning bid. So much for the negative futures from the jobs report missing by better than 50%. It is good news as it will stall the Fed actions… who cares about more jobs and stronger economic picture long term.
ISM services numbers were better than expected, but lower on the month. Despite the lower number the focus was on the opinion it could have been worse. Economic data is not improving, but some believe the first quarter is the worst and things will be improving moving forward. In other words, the glass is half full. If the economy was growing at a 4% clip the previous three quarters… it can’t just disappear and move to zero overnight… right? Thus, the rational for the growth returning going forward… the weather impacted the first quarter results. I feel like I am watching the scene from the Wizard of Oz where the dog pulls the curtain back to show a small old man making all the noise as the Great Oz. “Pay no attention to the man behind the curtain!” That is the perfect line for the current rational and opinions relative to the market looking forward.
Does this change anything? Yes, Energy stocks (XLE) broke through resistance at $78.15 and gained better than 2% on the day. Watch for the follow through to the move higher. The major indexes all held the key support levels and keep the dream alive. The volatility index holds below the 15 mark and regardless of what any of us thinks, the markets continue find buyers at each level of support. We are still trading sideways and the opportunity to move higher is kept alive. Monday is a prime example of not wanting to, nor being able to predict the future. One day doesn’t change anything and there is plenty of work to be done going forward.
The financial sector was a big laggard on the day as interest rate hikes from the Fed are presumed to be on hold and that takes away the hope of higher rates and higher margins for the sector. $23.85 support and $24.50 resistance. This is one sector to watch going forward as it will be a barometer for the Fed action or inaction whichever the case may be.
Despite today’s activity this market remains challenged relative to direction. Sideways is still the direction of choice, but some are believers today was a catalyst for the upside. I would reserve judgement as earnings start on Wednesday and they should have an impact on sentiment and outlook. Unless traders are going act like racehorses with blinders on it is going to get interesting.
If, and that is a big if, the rally today was due to, one, the dovish Fed, two, a weaker dollar thanks to the Fed, and three, the services sector showing an expanding economy, then anything going forward contrary to those being true would equally prompt selling as the catalyst would be invalid. As stated above earnings season kicking off in two days may be a wildcard or exception to the three primary catalyst for the markets to move higher… right? Wow, this is all getting too confusing for me. Shall we just say there is still a lack of clarity for the markets going forward and if there were ever a time to patient… now would qualify. Hope is not a strategy for investing and that, from my view, is what is currently driving the market direction day to day.