Was the first quarter—more specifically March—a harbinger of things to come? Correlated moves—aka momentum trading—unwound to the lowest levels since 2012 and breadth, or the number of stocks advancing—came roaring back.
Nothing has been easy in 2016, a year which the S & P plunged over 10% in the first six weeks of trading, only to close the quarter virtually unchanged—the biggest turn around since 1933.
As stated above, momentum strategies came unglued as momentum traders’ focus on technology and healthcare companies, grossly underperformed perhaps the result of large downward earnings revisions and massive over ownership. Conversely, an index maintained by Goldman indicated the 50 least owned stocks have gained 5.3% this year.
Thirty days does not make a trend especially after a disastrous 25 months of massive underperformance for those not involved in momentum trading, it is encouraging for those who still believe the primary catalyst for higher share prices is geopolitical and macroeconomic analysis.
Commenting about yesterday’s trading; equities led by healthcare issues, primarily the result government clamp down on inversions ended moderately lower as selling accelerated during the final 30 minutes or trading. The S & P500 was off about 1.0% while the Dow declined about 0.75%. Oil closed about 2.0% higher on an inventory survey. Yesterday’s 1% S & P decline ended the longest streak of “calmness”—defined as a 1% move in either direction—in 13 months.
The data was mixed. However I thought it was significant the ISM Non-Manufacturing Index—an index that measures activity in about 90% of the economy–rose in March, the first increase in five months. The sub-indices—index of new orders and business activity index—also rose by an unexpected amount.
Commenting about a job opening survey, the report offered good news with more workers finding positions and an increase in the number who felt confident to leave their jobs. Layoff remained muted, corroborating weekly jobless claims that linger near the lowest in decades.
The dollar fell and gold advanced the most in about a week. Gold had its best quarter since 1986—rising over 16%.
What will happen today? How will the Minutes from March’s FOMC meeting be interpreted?
Last night the foreign markets were mixed. London was up 0.57%, Paris up 0.22% and Frankfurt down 0.22%. China was up 0.54%, Japan down 0.11% and Hang Sang up 0.15%.
The Dow should open nominally higher following the steepest losses in four weeks on a rebound in crude. Oil is up for two reasons…Kuwait’s statement believing a production freeze will occur, a statement made yesterday morning, and inventory levels lower than furcated. The 10-year is off 7/32 to yield 1.75%.
