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Stock Market Outlook for February 25, 2014

Todays_Markets4

Upcoming US Events for Today:

  1. FHFA House Price Index for December will be released at 9:00am.   The market expects a month-over-month increase of 0.3% versus an increase of 0.1% previous.
  2. Case-Shiller House Price Index for November will be released at 9:00am.   The market expects a year-over-year increase of 13.3% versus an increase of 13.7% previous.
  3. Consumer Confidence for February will be released at 10:00am.   The market expects 80.1 versus 80.7 previous.
  4. Richmond Fed Manufacturing Index for February will be released at 10:00am.   The market expects 3 versus 12 previous.

 

Upcoming International Events for Today:

  1. German GDP for the Fourth Quarter will be released at 2:00am EST.   The market expects a year-over-year increase of 1.4% versus an increase of 0.6% previous.
  2. Great Britain CBI Distributive Trades for February will be released at 2:00am EST.   The market expects 12 versus 14 previous.

 

Recap of Yesterday’s Economic Events:

Event Actual Forecast Previous
EUR German IFO – Business Climate 111.3 110.5 110.6
EUR German IFO – Current Assessment 114.4 112.8 112.4
EUR German IFO – Expectations 108.3 108.1 108.9
EUR Euro-Zone Consumer Price Index (MoM) -1.10% -1.10% 0.30%
EUR Euro-Zone Consumer Price Index (YoY) 0.80% 0.70% 0.70%
EUR Euro-Zone Consumer Price Index – Core (YoY) 0.80% 0.80% 0.80%
USD Chicago Fed Nat Activity Index -0.39 -0.2 -0.03
USD PMI Services Flash 52.7   56.70
USD Dallas Fed Manufacturing Activity 0.3 3 3.8

 

The Markets

Stocks surged on Monday despite another set of disappointing economic numbers.   The Chicago Fed National Activity Index, the Flash Services PMI, and the Dallas Fed Manufacturing Index all reported declines versus previous months.   None of the reports were able to meet or exceed estimates that analysts had expected of them; weather is believed to be a factor, once again.   On the surface, the string of disappointing economic reports appears to have had little impact on equity benchmarks in the US with the S&P 500 index back to the highs set in mid-January, just as the cold weather in the US northeast started to make its presence obvious.   However, just as is typical during colder than average years, there are winners and losers.   Utilities and Energy have been among the top three sectors that have recorded gains since the all-time closing high for the S&P 500 was charted on January 15th.   Consumer stocks, both discretionary and staples, have been among the losers.  The deviation of both the utilities and energy sectors away from the returns of the rest of the market shows that investors are treating the weather as a factor influencing economic activity; the activity has been in-line with the sector performance recorded in similarly colder than average winter weather periods.   The weather impact typically causes a strain on the broad market as consumer stocks and industrials are pressured lower due to higher energy costs and diminished economic activity.   The good news is that the impact of colder than average weather on equity markets fades on March 10, on average, as the weather typically begins to warm; a spring rebound typically follows, assuming the weather trends more towards norms for that time of year.   With only two weeks left until the March 10th date, there is light at the end of the tunnel and it will be interesting to see the performance of some of these depressed sectors, particularly in the consumer space, into the month of March.

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Although the S&P 500 did not chart a new all-time closing high on Monday, a new all-time intraday high was achieved.   The benchmark hit a high of 1858.71, surpassing the mid-January peak at 1850.84.   The move on the session could be deemed an unconfirmed breakout in that a new intraday high was achieved, but it was not confirmed by a close above resistance.   The long-term trend of higher-highs and higher-lows is being kept alive, but until a breakout is confirmed, resistance remains.  

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The bond market remains sceptical, however, that we’re in a continued “risk-on” period.   While stocks have recouped all of the recent year-to-date losses, bond prices are still holding relatively firm around their 2014 highs.   The decline in the 7 – 10 Year Treasury Bond Fund (IEF) since the start of February, when the equity market rebound commenced, has been slight, retracing around half a percent of the over 3.5% gain coming into the month of February.   Bond market risk sentiment is also showing restraint.   The ratio of the Junk Bond ETF versus the Investment Grade Corporate Bond Fund (LQD) has retraced the sharp year-to-date decline, trading back to the levels at which it opened the year.   Similar to the equity market, bond market risk is resisting at the mid-January high as investors remain cautious around present levels.   A catalyst may be required to fuel a breakout, giving investors the confidence to take on risk, yet again.

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Seasonal charts of companies reporting earnings today:

RGR

RRC

RRD

FST

DWA

NLY

TOL

SDRL

SAFM

ODP

M

HD

EXPD

EOG

DPZ

CBRL

BMO

AMT

CAS

Sentiment on Monday, as gauged by the put-call ratio, ended bullish at 0.78.

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S&P 500 Index

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TSE Composite

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Horizons Seasonal Rotation ETF (TSX:HAC)

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2014 Year-to-Date Since Inception (Nov 19, 2009)
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