Thursday, March 27, 2014

Flirting With YTD Losses

The markets opened on a lower note today, with the S&P 500 breaking below the 1848 level where it started the year.  That makes the market basically flat for the year so far, which is probably not the expectation most investors had for the stock market coming into the year.

We still expect positive returns from stocks this year, but it is not all that surprising to see the market digesting last year's outsized gains.  We also expect to see more volatility in 2014 vs. 2013, which could manifest itself in deeper corrections that we saw last year.

In economic news, the final reading for Q4 GDP settled at 2.6%, just below previous estimates.  But the real final sales component rose to 2.7% and that was the strongest reading for this component since 2Q 2012. 

In corporate news, Baxter (BAX) is higher after saying it will split the company into two separate businesses.  Citi (C) is lower today after the Federal Reserve rejected the big bank's capital plan to increase share buybacks and dividends.

Asian markets ended mixed.  Most were lower but Japan rallied on continued stimulus expectations.  The Economy Minister said the Bank of Japan can maximize the impact of easing measures by surprising the markets.

Europe's markets are mostly lower.  Great Britain's retail sales rose 1.7%.  And French consumer confidence rose to 88 from 85.

The 10-year yield broke below its 50-day average and is a bit lower again today down to 2.69%.

The volatility index is hovering right at the 15 level which often marks the level above which markets are usually in correction mode and below which they often are in rally mode.

Trading comment: Yesterday we talked about being a little more defensive.  The market reversed its early gains and closed on its lows yesterday.  The Nasdaq and the Russell 2000 are both now trading below their 50-day averages.  This increases the likelihood that the S&P 500 follows suit.  The 50-day support for the SPX currently resides near the 1834 level.  So this bears watching and could mean that the markets are in store for another correction.  Most corrections for the last 2 years have been shallow, likely due to the effect of QE by the Fed which has increased liquidity.  So we want to maintain a cash cushion to be able to take advantage of the opportunities a pullback could present.


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