Market Perspective for April 1, 2016

The markets started the week with speculations for a rate hike at the Federal Reserve’s April or June meeting, but the odds were complicated on Tuesday when Fed Chair Janet Yellen spoke to the Economic Club of New York. Yellen cited weakness in China and oil, sending stocks to 2016 highs. By the end of the week, however, positive data had cast a cloud of uncertainty. Data reported on Thursday showed March expansion in China’s manufacturing sector, followed by strong U.S. employment and manufacturing data for March, which points to an ever strengthening U.S. economy.

Overall, March was a great month, with the S&P 500 Index climbing 6.60 percent. The index is now positive for 2016. The March rally back to the black also made for the greatest quarterly comeback in history; the S&P 500 Index was down 11.3 percent at one point in the first quarter.  Large-caps, utilities and consumer stocks were among the winners, leading to strong performance for the Dow Jones Industrial Average as well. The Nasdaq fell short of recovering into positive territory, largely due to losses in biotech. It finished the quarter down 2.8 percent, its first losing quarter since 2009.

Friday morning’s monthly U.S. employment report from the Bureau of Labor Statistics initially sent stocks lower as investors scrambled to revise rate-hike expectations in the event of a June hike. All data points were positive and 215,000 net new jobs were created, ahead of expectations. Wages grew 0.3 percent, above expectations and well above the prior month’s 0.1 percent decline. The unemployment rate also increased, which is good news as well; when discouraged workers renew the search for employment they are added back into the numbers. Unemployment could rise for many months if millions rejoin the workforce.

Commodities also enjoyed a strong quarter, benefiting from a 4.1-percent drop in the dollar. Gold briefly rose 16.4 percent as investors reacted to dovish central banks in Europe, Japan and China, but June futures tumbled over $22.50 an ounce following Friday’s labor report.  The price for a barrel of West Texas Intermediate Crude increased 3.5 percent after dipping to its lowest point in more than a decade.

In earnings news this week, sports apparel company lululemon athletica (LULU) exceeded expectations for the fourth quarter and 2015. The company generated earnings per share of $0.85 on revenues of $704 million, easily beating consensus estimates of $0.80 and $693 million. The company also provided positive guidance for 2016 and shares rose more than 11 percent on the news. Memory chip giant Micron Technology (MU) posted mixed earnings results and offered bearish guidance for its upcoming fiscal third quarter. While the company’s loss of $.03 per share beat estimates by three cents, its revenue of $2.93 billion was below the estimate of $3 billion. Company shares were unchanged on the week.

In addition to Yellen’s positive comments and the March employment report, the market saw several other encouraging data points this week. On Monday, the National Association of Realtors reported a 3.5-percent rise in February pending homes sales to the highest level in seven years. The Dallas Federal Reserve Manufacturing Survey beat estimates and reached its best reading since November. The S&P/Case-Shiller House Price Index composite of 20 major cities increased 5.7 percent in January compared to the same month a year ago, which was in line with estimates. The ISM-Chicago regional manufacturing survey indicated a six-point increase to 53.6. Readings above 50 indicate expansion. As mentioned, China’s manufacturing index also jumped, climbing from 48 last month to 50.2. The U.S. Markit PMI was also positive, hitting forecasts of 51.5, while the ISM PMI swung from below 50 to 51.8. The ISM PMI had been below 50 for several months, leaving investors to wonder which survey was sending the best signal. With ISM joining Markit in expansion, the debate is resolved. The Michigan Consumer Sentiment Survey for March also came in above expectations on Friday.

    Your Cart
    Your cart is emptyReturn to Shop