The Week In Review

3/7-3/11/16

 The stock market ended an upbeat week on a higher note as investors backpedaled from yesterday's initial response to the European Central Bank's latest policy statement and remarks from ECB President Draghi. Meanwhile, supportive conditions from the oil patch and leadership from the heavyweight financial (+2.7%) sector expanded the stock markets winning-streak to four weeks. The Nasdaq Composite (+1.9%) finished ahead of the S&P 500 (+1.6%) and the Dow Jones Industrial Average (+1.3%).

Equity indices jumped out of the gate, as global equity markets rebounded after yesterday's muddled trade. Yesterday's flat performance followed remarks from ECB President Draghi indicating that he does not anticipate that rates will need to be lowered further. Today, investors focused on the ECB's policy statement itself, which expanded asset purchases and lowered the interest rate corridor. As a result, European bourses rallied with financials at the forefront. To that point, Deutsche Bank (DB 20.62, +1.35) jumped 7.0%.

The heavyweight financial sector (+2.7%) displayed strength from the start as it traded higher in sympathy with European banks. The group entered positive territory for the week (week-to-date +1.0%) and extended its March advance to 6.6%. Strength in the financial sector was broad based with money center banks, asset management names, and insurance companies all helping to push the economically-sensitive sector higher.

Meanwhile, a rally in crude oil enabled commodity-sensitive energy (+2.2%) and materials (+1.8%) to top the leaderboard. WTI crude benefited from a report from the International Energy Agency, which contended that production declines from the U.S. and other non-OPEC members may be signaling a bottom in oil. To be fair though, the report also pointed to largely flat demand from the United States. The energy component ended its day higher by 2.4% at $38.67/bbl.

Heavily-weighted health care (+1.9%) was able to swing from a week-to-date loss to a 1.7% gain as biotechnology outperformed. The iShares Nasdaq Biotechnology ETF (IBB 261.94, +6.86) climbed 2.7% today as the ETF moves off a year-to-date loss of 20.9%. The broader health care sector is down 5.1% over that period. Separately, Dow component Pfizer (PFE 30.50, +0.91) climbed 3.1% after receiving FDA approval for expanded use of XALKORI to treat patients with metastatic non-small cell lung cancer. Pfizer topped the price-weighted index.

The Dow Jones Transportation Average (+2.3%) displayed relative strength today as rail names outperformed in the index. Meanwhile, Avis Budget (CAR 27.47, +1.60) jumped 6.2% as it traded higher in sympathy with Hertz Global (HTZ 11.09, +1.22), which surged 12.4 % after receiving an upgrade at Morgan Stanley to "Overweight."

The dollar pared early gains against the euro. The euro/dollar pair ended lower by 0.2% (1.1151) after slipping from a high of 1.1189. Meanwhile, the dollar/yen pair ended near its intra-day high (113.81).  

The Treasury complex moved to session lows as the equity market extended its rally. All in all, the yield on the 10-yr note began the day at 1.94% before moving to a session high of 1.98% (+4 bps) and drifting there until the close.

Today's participation fell below the recent average with fewer than 974 million shares changing hands at the NYSE floor.

Today's economic data was limited to February Import/Export Prices:

We saw in today's Import/Export Price Index report that declining fuel prices again acted as a major drag on import prices, which fell 0.3% in February after a 1.0% drop in January. That left import prices down 6.1% year-over-year.

Excluding fuel, import prices edged down 0.1% month-over-month and are down 2.7% year-over-year. Translation: price declines aren't just energy driven. For the record, nonfuel import prices haven't recorded a monthly increase sine July 2014.

Export prices, meanwhile, declined 0.4% with declining nonagricultural prices more than offsetting rising agricultural prices. Export prices are down 6.0% year-over-year.

Excluding agriculture, export prices declined 0.4% in February and are down 5.6% year-over-year.

There are no economic releases of note scheduled for Monday.

Nasdaq Composite 5.2% YTD

Russell 2000 -4.3% YTD

Dow Jones -1.2% YTD

S&P 500 -1.1% YTD

Week in Review: Four in a Row

After registering three consecutive weekly gains, the stock market endured a volatile trading week, but was able to log its fourth weekly gain in a row once it was all said and done. The S&P 500 added 1.1% for the week, extending its four-week run to 8.4%.

The benchmark index spent the bulk of the week near its 100-day moving average (1998.9) after running up to that level last Friday. A strong rally into the weekend lifted the S&P 500 from its 100-day average into the neighborhood of the 200-day moving average (2019.9). Investors did not receive any market-moving data during the week, which put a bright spotlight on Thursday's policy meeting at the European Central Bank.

Going into Thursday, the market had high hopes for new stimulus from the central bank and the ECB delivered, expanding its quantitative easing by EUR20 billion to EUR80 billion/month and lowering the interest rate corridor. Furthermore, the ECB announced it will now include corporate bonds in its asset purchase program and add four new targeted longer-term refinancing operations with four-year maturities.

In sum, the actions undertaken by the ECB represented everything the market had hoped for, but the decidedly bullish response to the policy statement reversed in a flash once ECB President Mario Draghi hinted that the market should not be girding its loins for more easing. For instance, the euro was down more than 1.5% against the dollar immediately after the policy statement was released, but surged nearly 2.0% against the greenback by day's end. For its part, Germany's DAX whipped around a 5.0%+ range on Thursday, ending the day lower by 2.3%. The German index surged 3.2% on Friday, ending the week little changed.

Next week will be much busier on the economic front, but central banks will remain in the spotlight with the Federal Reserve set to release its latest policy statement on Wednesday. Market expectations for the next fed funds rate hike have been brought forward over the past few weeks, but the fed funds futures market remains convinced that there is a zero percent chance of a hike at the March meeting. The market sees a 45.0% chance of a rate hike in June and a 51.0% probability of a rate increase in July.