In fact, for the past 16 months, investors have experienced one head-fake after another from markets. Meanwhile, the S&P 500 closed today at 2,051.60 … up 13% from the February low and right where it was way back in November 2014!
But the lack of overall market gains masks the epic volatility beneath the surface.
The New Year began with stocks in the midst of a selling squall. Reminiscent of the frequent downpours we experience during the south Florida summers, stocks experienced torrential selling, with the market falling five out of seven weeks to start this year.
|Markets hit by super-manic action – what’s ahead?|
A few weeks of sideways movement followed as the skies cleared and stocks found their footing in mid-February. And since then, investors have been on a buying binge that’s been just as forceful on the upside as January’s selling squall was on the downside.
The S&P 500 has rallied five straight weeks now, putting the Dow and S&P back into the plus column year-to-date and within striking distance of new highs.
Several tricky crosscurrents have been driving this crazy volatility. In a recent article (Green Shoots and Dark Clouds), I pointed out that one of the biggest reasons has been sharp turns in the economic data.
Investors were encouraged to buy stocks recently thanks to better-than-expected economic data. The rally in oil prices and the weakening U.S. dollar also get some of the credit. Plus, the Fed dialing down its plan to hike interest rates helps.
|“Don’t get too complacent … the market is back near the high end of the recent bungee-jump range.”|
But don’t get too complacent, because the market is right back near the high end of the recent bungee-jump range, and the next big move could easily be to the downside again. Just look at how far and fast stocks have advanced.
After its recent rebound, the S&P 500 Index is now two standard deviations above its 50-day moving average, which is a fancy statistical way of saying: Extremely overbought.
And buckle your seatbelts because this week is chock-full of potentially market-moving economic reports including the PMI Manufacturing Index tomorrow, new home sales Wednesday, durable goods orders Thursday and the final numbers on fourth-quarter GDP and corporate profits, due Friday.
The question is: Will bullish economic data and positive surprises keep supporting stocks, or are we in for yet another negative downside reversal?
Already this week the economic data has taken a turn for the worse with this morning’s report on existing home sales, which plunged 7.1 % last month, much lower than expected and the second-lowest reading in over a year. (More details below.)
Tighten your protective stops and stay tuned!
Sales of existing homes in the U.S. declined sharply last month — a disappointing result amid other signs that the American economy is holding up well in the face of a global slowdown. The National Association of Realtors said home re-sales fell 7.1% to an annual rate of 5.08 million units, the lowest level since November. Sales have been volatile in recent months after the introduction in October of new mortgage regulations that are intended to help homebuyers understand their loan options and shop around for loans best suited to their circumstances. The median price for a previously owned home rose 4.4% from a year ago to $210,800.
A report commissioned by the Confederation of British Industry said that Britain’s exit from the European Union could cause a “serious shock” to the country’s economy, possibly costing it 100 billion pounds ($144 billion) and up to a million jobs. Household incomes could be between 2,100 pounds and 3,700 pounds lower if Britain votes to leave the EU in a June 23 referendum, the study said. The UK’s unemployment rate, currently at 5.1%, would be 2 to 3 percentage points higher, with 950,000 jobs potentially lost, said the report, which was conducted by accountancy firm PricewaterhouseCoopers (PwC).
The world’s largest Internet poker company has set up shop in New Jersey. The New Jersey Division of Gaming Enforcement approved PokerStars for full operations in the state, and the company’s software became available for download. The launch marked the return of the Internet poker giant, which stopped doing business in the U.S. in 2011, ABC News reported. For now, only PokerStars customers physically located in New Jersey will be able to use the platform to gamble online in the U.S. New Jersey has the largest market of the three U.S. states that currently offer Internet gambling (along with Nevada and Delaware).
President Obama was greeted by Cuban President Raul Castro with a military honor guard and the playing of the U.S. and Cuban national anthems at the Revolutionary Palace in Havana as his historic visit to the island nation continued. Obama stopped earlier at the nearby Plaza of the Revolution, where he laid a wreath at the statue of 19th century independence hero Jose Marti. The presidents made public comments later in the day. On Tuesday, the Tampa Bay Rays will play an exhibition baseball game against the Cuban national team.
The Money and Markets team