March 26, 2017
Weekly Market Outlook
By Keith Schneider
Pyyrho -Greek Philosopher (The First Skeptic)
The S&P 500 did the unthinkable, it actually had a -1.2% down day last Tuesday.
This action broke the 109 day streak of S&P 500 trading without a correction of greater than 1%. The last time the S&P 500 had a streak greater than this duration was in 1963, which ended on March 1st of that year and endurred for 155 days.
As of the close on Friday, the S&P 500 benchmark index closed at 233.96, down -1.24% for the week and almost -3% off its all time highs.
More importantly, US equities stayed below important short-term support levels that we highlighted last week. It worsened after the initial break while remaining in a weakened state.
The S&P 500 (SPY) tried to make a comeback Friday morning, but it could not hold on to its early gains, closing flat, after bouncing off its 50-day moving average. It closed the week clinging to a bullish market phase.
The failure of Congress to repeal the Affordable Care Act (a.k.a Obamacare) reverberated through the markets Friday afternoon. It has called into question whether or not the other Trump initiatives will get the follow-thru the markets are anticipating.
Market skeptics seem to be getting the fuel they need. By Friday’s close, the Russell 2000 (IWM) and Trannies (IYT) closed down on the year. The fact is that the 2000 stocks in the Russell are domestic companies and expected to benefit the most from the regime change. Same goes for Trannies.
Another confirmation that markets are skeptical about Trump initiatives coming to fruition is that Mexico (EWW) has been rallying sharply since Trump assumed office.
Right fter the election, Mexican stocks plumeted and continued to decline until just before Trump’s inauguration. EWW has been on a tear ever since, up 25% and closed the week strong, unlike US stocks.
The sector rotation picture continues to weaken with Real Estate (IYR) and the and Materials (XLB) weakening in market phase. At the same time, Utlities outperformed all other sectors which is another market indication of a “risk off” mood to the market.
The one bright spot continues to be Semiconductors (SMH). This was demonstrated by Micron’s (MU) 8% rally on Friday based on strong demand for chips.
The disconnect between expectations and the big run in stocks is certainly setting the stage for some pyrotechnics.