Stock Market Outlook for April 7, 2014
Upcoming US Events for Today:
- Consumer Credit for February will be released at 3:00pm. The market expects $14.0B versus $13.7B previous.
Upcoming International Events for Today:
- Japan Leading Index for February will be released at 1:00am EST.
- German Industrial Production for February will be released at 2:00am EST. The market expects a year-over-year increase of 4.7% versus an increase of 5.0% previous.
- Euro-Zone Sentix investor Confidence for April will be released at 4:30am EST.
- Canadian Business Outlook for the First Quarter will be released at 10:30am EST. The market expects 31 versus 29 previous.
- Bank of Japan Monetary Policy Statement will be released at 8:00pm EST.
Recap of Yesterday’s Economic Events:
|EUR German Factory Orders n.s.a. (YoY)||6.10%||6.80%||7.08%|
|EUR German Factory Orders s.a. (MoM)||0.60%||0.20%||0.10%|
|EUR German Markit Retail PMI||50.2||52.1|
|EUR Euro-Zone Markit Retail PMI||49.2||48.5|
|EUR French Markit Retail PMI||50||48.4|
|EUR Italian Markit Retail PMI||46.5||43.1|
|CAD Net Change in Employment||42.9K||22.5K||-7.0K|
|CAD Full Time Employment Change||12.8||18.9|
|USD Unemployment Rate||6.70%||6.60%||6.70%|
|USD Change in Private Payrolls||192K||195K||188K|
|USD Average Hourly Earnings (MoM)||0%||0.20%||0.40%|
|USD Average Hourly Earnings (YoY)||2.10%||2.30%||2.20%|
|USD Average Weekly Hours All Employees||34.5||34.4||34.3|
|USD Change in Household Employment||476||210||42|
|USD Underemployment Rate||12.70%||12.60%|
|USD Labor Force Participation Rate||63.20%||63.00%|
|CAD Unemployment Rate||6.90%||7%||7%|
|CAD Part Time Employment Change||30.1||-25.9|
|CAD Participation Rate||66.2||66.2|
|USD Change in Non-farm Payrolls||192K||200K||197K|
|USD Change in Manufacturing Payrolls||-1K||7K||19K|
|USD Two-Month Payroll Net Revision||37K|
|CAD Ivey Purchasing Managers Index s.a.||55.2||59||57.2|
Stocks showed significant weakness on Friday after the release of the employment report for the month of March. Results of the report were largely inline with estimates with Non-Farm Payrolls showing an increase of 192,000 versus expectations of 206,000. Previous months were also upwardly revised. Equity markets in the US initially traded higher following the release with the S&P 500 charting a new all-time high of 1897.28, just below psychological resistance of 1900, and the Dow Jones Industrial Average hit an all-time intraday high of 16,631.63. But the strength was short lived as many benchmarks were pressured lower throughout the session, led by the continued weakness in high-flying momentum names. Netflix, Facebook, Priceline, Amazon, and Tesla, all Nasdaq listed equities, dropped over 3% on the day, placing considerable weight on the Tech heavy benchmark. At the end of the day, the Nasdaq Composite was found trading below its long-term rising trend-channel that stretches back to November of 2012. The Nasdaq has significantly underperformed the broad market over recent weeks as the growth/momentum trade fades. Warning signals for the broad market remain as investors shed these riskier assets. The Nasdaq Composite seasonally underperforms the broad market through to mid-April.
Concern is also arising from the potential double-top on the Dow Jones Industrial Average. Despite a new all-time intraday high on Friday that marginally surpassed the previous peak, speculation of a double-top around 16,600 remains. MACD has been negatively diverging from price since the year began, providing further merit to a potential bearish outcome resulting from the chart pattern. A break below short-term support at 16,046.99 would go a long way in confirming 16,600 as resistance. Downside potential of the bearish chart pattern points to a measured move towards 14,200, or a substantial 13.5% lower than Friday’s close. A decline of 10% or more would place the benchmark firmly into correction territory, an event that hasn’t come close to being achieved since the summer of 2012 when the blue-chip benchmark declined by almost 10%, from peak to trough. A correction remains long overdue.
As investors shed growth/momentum stocks, they are rotating into value names. Looking at the chart of the relative performance of the Russell 3000 Growth Index and the chart of the relative performance of the Russell 3000 Value Index, the two can be seen converging towards one another. The relative performance of the Growth benchmark peaked around the first quarter of 2012, subsequently charting a lower-high just this past quarter. The trend is implied to be lower as the growth trade shows signs of unwinding. The opposite can be said of the Value trade, bottoming around the first quarter of 2012 and charting a higher-low just this past quarter; the trend is implied to be higher. Over the past 10 years, the leadership of one group over the other is not necessarily a positive nor a negative for stocks. However, if we can use the period between 2007 and 2008 as evidence of what to expect, transition periods can be detrimental to the broad equity market. Expect Value stocks to continue to outperform Growth as the gap between the two closes.
Seasonal charts of companies reporting earnings today:
Sentiment on Friday, as gauged by the put-call ratio, ended bullish at 0.94.
S&P 500 Index
Horizons Seasonal Rotation ETF (TSX:HAC)
- Closing Market Value: $14.49 (down 1.09%)
- Closing NAV/Unit: $14.51 (down 0.90%)
|2014 Year-to-Date||Since Inception (Nov 19, 2009)|
* performance calculated on Closing NAV/Unit as provided by custodian
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