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Meidell: Market takes cues from Washington

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After reporting on the stock market the past few weeks, I am beginning to get a sense of how our local meteorologist growing up must have felt, having to report the weather in a coastal town in south central California where the local temperature never seemed to change by more than a few degrees. With 310 companies that make up the Standard & Poor’s 500 having reported earnings so far, according to FactSet, earnings are now expected to grow by 5.2 percent year over year, which is well above the 3.2 percent rate that analysts had expected at the end of 2016.

However, even with the recent news of above average earnings, the stock market still appears to be a policy driven market. This means that investors are currently content to take their cues primarily from Washington. This might explain why the stock market appears to be going nowhere lately. Just as the recent tug of war going on between the Trump administration and Washington D.C. lawmakers has had the effect of slowing much of what the new Trump administration has tried to move forward, the stock market appears unable to move forward (upward) as well.

On Tuesday, the S&P 500 eked out a gain of 0.02 percent while the Nasdaq Composite rose 0.19 percent. Though the stock market appears to be in a trance lately, one of the bright spots on Tuesday was the technology sector with the Dow Jones U.S. Technology index up 0.49 percent on the day. However, one concern has been the recent underperformance of small companies. The broad stock market performs best when small companies are in the lead, but that hasn’t been the case lately, with Russell 2000 declining 0.44 percent on Tuesday. When small companies under perform, it typically signifies that there is less money sloshing around in the stock market, and an indication that investors are holding on to their dollars a little tighter.

This week’s top performing sectors are led by the Dow Jones U.S. Technology index up 2.35 percent over the past five trading days, followed by the Dow Jones U.S. Healthcare index higher by 1.44 percent over the same period.

Meidell: Major markets stuck in a time correction?

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Though the major market averages briefly closed at all-time highs during January, those rallies ended almost as quickly as they began, leaving the markets with little upward progress. However, all of this waiting and hoping for the stock market to continue higher might be causing some investors to grow impatient. As of Monday’s close, the Standard and Poor’s 500 hadn’t exceeded a daily range of more than 1 percent for 35 consecutive days, making this the longest run of low volatility of this type going back to 1974, according to Thompson Reuters data.

Some believe that stocks can go through both price corrections and time corrections. A price correction is when stocks move for a period of time in the opposite direction of the primary trend. In other words, if the price has been moving higher for a period of time, it typically declines for a short spell, before resuming its trend and moving higher once again. On the other hand, if price has moved too quickly in one direction, it can appear to stall out, as it trades horizontally for a time before once again resuming its primary trend.

With the major market averages so far stubbornly holding on to their gains, the stock market appears to be in a time correction. The major averages were little changed Monday, with the Standard and Poor’s 500 down 0.21 percent and the Nasdaq Composite slipping 0.06 percent.

As we begin the new month, earning season continues. As of Monday, earnings season is a little over halfway completed, with 279 of the companies that make up the S&P 500 having reported their fourth-quarter earnings.

This past week, Philippine President Rodrigo Duterte ordered the closure of 23 mines for environmental reasons. These mines produce mainly nickel and represent roughly 8 percent of the world’s supply. The silvery metal is used primarily in the production of stainless steel, magnets and coins. As speculators rushed back into the nickel market, this week’s top performing commodities were led by the S&P GSCI Nickle index, up 7.96 percent over the past five trading days, followed by the S&P GSCI Palladium index, higher by 4.86 percent.

Meidell: The extremes of earnings season

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Earnings season can be a time of feast and famine, as companies announce their earnings and investors respond with either an outpouring of exuberance that at times mirrors a Super Bowl victory, while at other times can resemble the disdain of an angry mob. These oversized moves in stock prices can also have an effect on the stocks indexes of which they are members. This usually explains why the major market averages can at times disagree with one another on a given day.

This was the case on Tuesday as the Dow Jones Industrial Average fell 0.54 percent while the Nasdaq Composite held on to a slight gain of 0.02 percent, as a couple of leading financial companies that make up the Dow suffered above average losses on the day.

Most U.S. market averages began the day trading in negative territory but by the closing bell were solidly in the green. Despite the Dow’s poor performance on Tuesday, U.S. small company stocks finished higher with the Russell 2000 small company index gaining 0.70 percent.

If there was one event that stood out during the day it was President Trumps’ meeting with leading U.S. drug manufacturers on Tuesday. After telling the drug manufacturers a few weeks ago that they were “getting away with murder” due to high prices, this time he seemed to adopt a softer tone. During the meeting Trump backed away from the idea that the U.S. would be setting drug prices and reinforced his plan to lower taxes, speed up regulatory approval and help protect drugmakers from foreign countries able to charge less because U.S. consumers pay higher prices. In return Trump maintained that the companies needed to relocate there manufacturing plants to the U.S.

Not surprisingly health care and biotechnology stocks received a boost following the news with the Dow Jones U.S. Heath care index up 1.54 percent and the Nasdaq Biotechnology index higher by 2.84 percent on the day. Tuesday’s gains also shifted health care stocks into the top position for the week with the Dow Jones U.S. Health care index gaining 1.98 percent over the past five trading days, followed by the Dow Jones U.S. Utilities index rising 1.57 percent over the same period.

Meidell: Markets reacting to White House actions

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If there was any doubt that the stock market rally was following both policy expectations and news coming from the new White House administration, the markets’ response Monday should put those doubts to rest.

Stocks gapped lower at the opening bell, after a tumultuous weekend news cycle that saw President Trump’s executive order to restrict immigration from seven countries, among other things.

Though still finishing lower on the day, the major averages went on to recoup roughly half their early losses, with the Standard and Poor’s 500 declining 0.60 percent and the Nasdaq Composite falling 0.83 percent by the closing bell.

Most investors have been anxiously awaiting the new administration’s economic promises — such as tax reform — but after this weekend’s events, might be realizing that they will have to exercise more patience than expected.

A large number of companies will be reporting their quarterly earnings this week, which will give investors a better sense of the strength of the U.S. economy. On Wednesday, following the FOMC meeting, the Federal Reserve will release its guidance on interest rates. Though there is little chance the Fed will raise interest rates at this time, investors will be listening for any changes to the Fed’s expectation of raising interest rates roughly three times later this year.

For the week, only a select few commodities finished in positive territory, with the top-performing commodities led by the S&P GSCI Platinum index, up 1.38 percent over the past five trading days, followed by the S&P GSCI Lean Hogs index, higher by 0.66 percent. Most commodities finished the week in negative territory, with the largest losses seen in the wheat market.

Meidell: Markets react positively to Trump’s plans on infrastructure and trade

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The major market averages looked as though they were ready to begin their next leg higher on Tuesday, after news from the Whitehouse suggested the president was taking steps to open the way for new infrastructure projects. President Trump began the day on Tuesday signing an executive action that revives the two oil pipeline projects, Keystone XL and Dakota Access, that were put on hold by the prior administration. The President said he intended to streamline the permit process for infrastructure projects, and that pipelines built in the U.S. were to be built using U.S. produced steel.

Later, during a meeting with executives of U.S. auto manufacturers, President Trump said he would make it easier to build manufacturing plants here in the U.S. by expediting environment reviews for manufacturers. Ford’s CEO Mark Fields said he was “very encouraged by the President and the economic policies that he is forwarding” to include the “withdrawal from TPP”, and that as an industry they were “excited to work with this administration to create a renaissance in American manufacturing.”

With all the talk about building going on, Wall Street took its cues from the Whitehouse lifting the Dow Jones U.S. Basic Materials index higher by 2.87 percent making it the top performing sector on Tuesday. Not surprisingly, the second top performing sector was the Dow Jones U.S. Industrial index up 1.19 percent on the day.

All in all, it was a solid performance among the major market averages with the Standard and Poor’s 500 rising 0.66 percent, to close at a new all-time high, and the Nasdaq Composite gaining 0.86 percent. Though still off its highs, the Russell 2000 small company index advanced 1.59 percent Tuesday, and indication that the buyers are still enthusiastic about this market.

President Trump’s meeting schedule with both business and labor leaders the past couple of days appears to be created a change of tenor in the stock market. For now, investors look as if they are trying to get ahead of Trump’s pro-growth agenda, which can be seen by this week’s top performing sectors. In the No. 1 spot for the week is the Dow Jones U.S. Basic Materials index up 3.89 percent over the past five trading days, followed by the Dow Jones U.S. Consumer Goods index higher by 1.93 percent over the same period.

Meidell: Markets may be in Holding Pattern

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The Dow Jones Industrial Average declined for the fifth day on a row on Thursday, with investors in what appears to be a holding pattern prior to the presidential inauguration. Though the major market averages traded marginally higher for the first 30 minutes of the trading day, the averages spent the remainder of the day in negative territory. For U.S. large company stocks it was an uneventful day with the Standard & Poor’s 500 shedding 0.36 percent and the Nasdaq Composite losing 0.28 percent by the markets close. However, liquidity in the stock market has been drying up as we get closer to the inauguration, such that U.S. smaller company stocks continued to erode on Thursday with the Russell 2000 index falling 0.94 percent.

This week’s rising political tensions in Washington, D.C., may be playing a part in the stock market’s recent hesitation, so the lack of liquidity in stocks could change by next week. One sign that investors are cautious and not fearful heading into the inauguration is the recent decline in bond prices. When investors are nervous about the future, money tends to move into high quality bonds. However, for the second day in a row bond prices have declined, changing their short term trend to officially downward, with the ICE 20+Year U.S. Treasury Bond index falling 0.69 percent on the day.

This week the top performing area of the bond market has a common theme and that is foreign bonds. Investments in foreign currencies get a boost when the U.S. dollar falls in value like it did this week. For the week, the top performing bond index was the Citi International Inflation Linked Securities index up 0.34 percent over the past five trading days, followed by the S&P/Citigroup International Treasury Bond index Ex-US higher by 0.25 percent over the same period.

Reno Gazette-Journal, Jan. 19, 2017

Meidell: Markets may be in holding pattern

By | Published Articles

The Dow Jones Industrial Average declined for the fifth day on a row on Thursday, with investors in what appears to be a holding pattern prior to the presidential inauguration. Though the major market averages traded marginally higher for the first 30 minutes of the trading day, the averages spent the remainder of the day in negative territory. For U.S. large company stocks it was an uneventful day with the Standard & Poor’s 500 shedding 0.36 percent and the Nasdaq Composite losing 0.28 percent by the markets close. However, liquidity in the stock market has been drying up as we get closer to the inauguration, such that U.S. smaller company stocks continued to erode on Thursday with the Russell 2000 index falling 0.94 percent.

This week’s rising political tensions in Washington, D.C., may be playing a part in the stock market’s recent hesitation, so the lack of liquidity in stocks could change by next week. One sign that investors are cautious and not fearful heading into the inauguration is the recent decline in bond prices. When investors are nervous about the future, money tends to move into high quality bonds. However, for the second day in a row bond prices have declined, changing their short term trend to officially downward, with the ICE 20+Year U.S. Treasury Bond index falling 0.69 percent on the day.

This week the top performing area of the bond market has a common theme and that is foreign bonds. Investments in foreign currencies get a boost when the U.S. dollar falls in value like it did this week. For the week, the top performing bond index was the Citi International Inflation Linked Securities index up 0.34 percent over the past five trading days, followed by the S&P/Citigroup International Treasury Bond index Ex-US higher by 0.25 percent over the same period.

Meidell: Yellen’s comments lift Wall Street’s mood

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After beginning the day on a down note, the major market averages appeared to be headed for another unenthusiastic day leading into the presidential inauguration. In fact, for most of the day the major averages saw little changes as investors held their cards close the vest, revealing little about their market bias. However, with an hour left to go in the trading day investors tuned in to listen to the prepared speech of Federal Reserve Chairwoman Janet Yellen before the Commonwealth Club in San Francisco.

In her speech Yellen indicated that the U.S. was in for a “nasty surprise down the road” if it delays too long in continuing to raise interest rates. She went on to say that it “makes sense” to raise interest rates “a few times a year” and that she sees rates rising to about 3 percent by the end of 2019. Though two percent is the Fed’s current inflation target, three percent is the rate she referrers to as the longer-run neutral rate.

Yellen shared that the rate increase in December was a reflection of the Fed’s confidence that the economy will continue to grow. However, according to the Fed the expected growth rate in the U.S. would be, “significantly slower than the post-world war two average”.

Yellen’s comments appeared to lift the mood on Wall Street as investors bought the dip, boosting the market averages higher. By the closing bell, the Standard & Poor’s 500 had risen 0.18 percent and the Nasdaq Composite gained 0.31 percent on the day. Conversely, the Fed President’s comments had a negative effect on bond prices sending the ICE U.S 20+ Year Treasury Bond index down 1.28 percent while lifting shares of financial companies.

This week’s leading countries appeared to be a result of short term rebounds off their recent lows. The top performing countries were led by the MSCI Turkey Investable Market index up 7.23 percent over the past five trading days, followed by the MSCI Chili Investable market index higher by 3.95 percent.

Meidell: U.S. investors grow cautious

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After the long holiday weekend, U.S. investors awoke on Tuesday to geopolitical news out of the U.K. as British Prime minister Theresa May laid out plans for avoiding a “Hard Brexit” from the European Union.

Investors around the globe appeared to take comfort in her speech where she said, “We are leaving the European Union but we are not leaving Europe.” In her plan she promised to put the final deal to vote in both Houses of Parliament, and said that she would be working toward a “bold and ambitious free-trade agreement” with the EU that would include partial membership in the EU customs union and continued tariff-free trade during the “implementation phase” of the new plan.

As May gave her speech the British pound rose roughly 2.9 percent against the U.S. dollar, the largest one day gain for the currency since 2008.

Here in the U.S., investors appear to be growing more cautious as the U.S. presidential inauguration gets closer, with the Standard & Poor’s 500 slipping 0.30 percent and the Nasdaq Composite falling 0.63 percent on Tuesday. Previously, the stock market has rallied into inauguration day, and this year the stock market still has a couple of days left if it chooses to push higher. It was clear that some investors were shifting to the safety of bonds and dividend-producing stocks on Tuesday with the ICE U.S. 20+ Year Treasury Bond index up 1.05 percent and the Dow Jones U.S. Real Estate index as higher by 0.67 percent on the day.

However, this presidential election has been anything but usual, so its probably wise not to assume that the stock market will behave the same way this time around. This would mean that the major market averages could go against tradition of falling off some once the inauguration is past, and potentially rally next week. Such a move higher next week would really catch a lot of investors off guard.

This week the top performing sectors showed the conservative mindset of investors led by the Dow Jones U.S. Utilities index up 1.90 percent over the past five trading days, followed by the Dow Jones U.S. Consumer Services index higher by 1.04 percent over the same period.

Meidell: Market has its headphones on

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The major market averages opened lower on Thursday, in one of the more persistent early selloffs we have seen so far this year. However, after falling enough to cast some doubt on the recent bull market in stocks, prices found their low point around mid-morning then began a recovery rally into the market’s close. By the closing bell the major averages had recovered most of their losses with the Standard & Poor’s 500 lower by 0.21 percent and the Nasdaq Composite off 0.29 percent. At one point during the morning the Russell 2000 small company index was down by as much as 2.01 percent, before buyers helped lift the index to finish lower by just 0.77 percent on the day.

Generally speaking, the stock market has been stalled out since early December, which may be trying some investor’s patience lately. However, just like a youth bopping down the street as they listen to their favorite song through their headphones, the stock market has its headphones on as well. You and I can’t necessarily hear the music, but the market has its own dance steps and has a purpose behind the steps it has made so far. Once prices move higher, like they did in November, they typically have to mark time, which is something like dancing in place for a while. To investors this can look like a short price decline, or prices can merely trade sideways for a while, which is what we have been watching since early December.

Though sharp declines like we saw Thursday morning can be scary, so far, volatility measures appears to be relatively subdued. This typically means that the potential exists for higher highs in the market averages in the near future.

This week most areas of the bond market are little changed making it difficult to draw much of a conclusion as to what is on investors’ minds. The top performing bonds for the week were led by the Bloomberg Barclay’s U.S. Convertible Bonds index up 0.47 percent over the past five trading days, followed by the S&P/Citigroup International Treasury Bond index higher by 0.28 percent over the same period.