Market Perspective for March 11, 2016

Major indexes closed out a third week of consistent gains with a Friday rally into bullish territory.  The European Central Bank’s decision to increase market intervention seemed to fizzle on Thursday, with most markets low or flat as the euro sharply rose.

On Thursday, ECB President Mario Draghi announced additional interest rate cuts to negative 0.4 percent and a continuation of the bank’s bond-buying program, as expected. Although the markets initially reacted by selling the euro and pushing equities higher, the trend rapidly reversed. Major European equity markets were up as much as 3 percent on Friday, which then propelled U.S. equity indexes. The move especially benefited financials; European bank stocks were up more than 4 percent on Friday and U.S. financials climbed nearly 2.5 percent.

Rising energy prices also boosted the market. Expectations of an OPEC output freeze failed to materialize, leading to volatility early in the week. Prices firmed when the International Energy Agency (IEA) indicated lower production in the U.S. and other non-OPEC countries and U.S. crude rose briefly above $39 per barrel on Friday.

Dollar General (DG) reported a 7-percent increase in quarterly sales. The company also intends to boost its quarterly dividend from $0.22 to $0.25 per share and buy back approximately $1 billion in shares during fiscal 2016. Urban Outfitter (URBN) beat EPS expectations of 56 cents, reporting actual EPS of 61 cents, even as revenues fell short. The news prompted several analysts to raise their price targets. In its first quarterly report as a public company, Square (SQ) reported $374 million in revenue, which exceeded expectations of $344 million. The company reported a 47-percent increase in payment over the same period last year. Shake Shack shares came under heavy selling pressure despite better-than-expected revenue and EPS.  The trendy restaurant chain’s 2015 IPO climbed from $45 per share to $92 in a wave of hype that led to overvaluations in its first few months of trading and has since leveled to a more realistic range.

U.S. Jobless claims were lower-than-expected and wholesale inventories increased in January, both of which are positive for the current quarter’s GDP report. Chinese exports fell 25.4 percent and imports were down 13.8 percent, below analysts’ predictions.   There were also data anomalies such as very high imports from Hong Kong, which indicate the use of trade settlement by investors to avoid capital controls. In the U.S., consumer borrowing slowed in the first month of the year. Although debt rose by a seasonally adjusted $10.54 billion, the change from the previous month was the smallest in almost two years. Strong consumer spending and rising wages continue to bode well for the U.S. economy.


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