The Week In Review

4/8/16

 The stock market ended a bumpy week on a flat note as the major averages spent the day in a steady retreat off their morning highs. Today's trade also featured a rally in crude oil, continued strength from the yen, and the underperformance of the heavily-weighted health care (-0.4%) and technology (UNCH) spaces. In addition, the Atlanta Fed lowered its GDPNow forecast for Q1 to 0.1% from 0.4%. The Nasdaq Composite (+0.1%) ended the week behind both the Dow Jones Industrial Average (+0.2%) and the S&P 500 (+0.2%).

The major averages began their day on a higher note as a rally in crude oil and developments overseas stoked risk-appetite. Early headlines cited a downturn in the yen and Italy's new bad-bank fund for the upticks abroad. Additionally, a stronger than expected reading of February exports from Germany (+1.3%; expected +0.5%) also boosted sentiment. As a result, the benchmark index began its day higher by 0.9%.

However, despite a persisting rally in crude oil, equities pulled away from their highs shortly after a lower than expected reading in the February Wholesale Inventories Report led to a revision in the Atlanta Fed's GDPNow forecast. First quarter GDP growth was revised to 0.1% from 0.4%. As a note, the initial estimate on February 1 was for 1.2% growth.

By the end of the day, eight sector remained in the green with energy (+2.0%), materials (+1.0%), industrials (+0.6%), and consumer staples (+0.5%) outperforming. On the flipside, consumer discretionary (-0.5%), health care (-0.4%), and technology (UNCH) led the downside.

Commodity-sensitive energy (+2.0%) topped the board as the space benefited from a 6.7% ($39.75/bbl) gain in WTI crude. Today's rally precedes next weekend's highly anticipated meeting between OPEC and non-OPEC members, which is expected to yield a production cap agreement between major producers.

Money center banks outperformed in the financial (+0.4%) sector as the sub-group responded to headlines, which reported that Italy's bad-bank fund might relieve pressure in the country's banking group as early as Monday. Separately, life insurance names slipped from their best levels as the sub-group responded to the appeal filed by the FSOC in MetLife's (MET 41.89, -0.03) hearing to have its "Too Big to Fail" designation removed. A reversal of the initial decision would result in a larger capital requirement and increased government oversight of the company.

In the health care space (-0.4%), a pullback in biotech component Regeneron Pharmaceuticals (REGN 404.94, -13.54) resulted in a pullback in the broader sub-group. To be fair though, the iShares Nasdaq Biotechnology ETF (IBB 277.35, -3.35) was up as much as 6.5% this week, before pulling back and ending the week higher by 3.4%. Meanwhile, Dow component Pfizer (PFE 32.31, -0.45) ended its day as the second worst performer in the price-weighted index.

Retail names and apparel companies demonstrated relative weakness in the consumer discretionary sector (-0.5%) as comparable sales readings for March disappointed investors. On that note, Gap (GPS 23.85, 3.83) tumbled 13.8% after reporting that comparable sales fell 6.0% in March.

The U.S. Dollar Index (94.22, -0.27) abandoned early strength as the yen rebounded from overnight losses. The dollar/yen pair finished lower by 0.1% (108.15) after trading as high as 108.44. Separately, the euro gained 0.2% against the greenback to end at 1.1400.

The yield on the 10-year Treasury note rose to 1.72% from 1.69% on Thursday. This represents a six-basis point increase from last week's settlement at 1.78%.

Participation on the NYSE floor was below the recent averages as fewer than xxx million shares changed hands.

Today's economic data was limited to the February Wholesale Inventories Report:

Wholesale inventories declined 0.5% in February (Briefing.com consensus -0.2%). That marked the fifth straight monthly decline after January saw a sizable downward revision to -0.2% from an originally reported 0.3% increase.

The decline in wholesale inventories will compute negatively in the inventory forecast for first quarter GDP. The Atlanta Fed's model forecast for real GDP growth in the first quarter was just 0.4% before the release of the Wholesale Inventories report.

The biggest driver of the February downturn was nondurable inventories, which declined 1.1%. The biggest drags there were farm products (-4.2%), drugs (-3.5%), and apparel (-1.3%).

Durable inventories declined 0.1% as a 2.0% increase in electrical inventories was offset by a 1.0% decline in both automotive and metals inventories.

Wholesale sales declined 0.2% in February on the heels of a downwardly revised 1.9% decline (from -1.3%) in January.

The wholesale inventories to sales ratio dipped to 1.36 from 1.37 in January, although it remained well above the 1.31 reading from the same period a year ago.

There will be no economic data of note released on Monday, but China will release March CPI and PPI data at 21:30 ET on Sunday.

Russell 2000 -3.5% YTD

Nasdaq Composite -3.1% YTD

S&P 500 +0.1% YTD

Dow Jones +0.9% YTD

Week in Review: Bouncing Around

Two weeks ago, the stock market was propelled to its sixth gain in seven weeks by dovish remarks from Fed Chair Janet Yellen. However, equities were unable to build on their recent strength, ending the past week on a lower note. The S&P 500 surrendered 1.3%, narrowing its 2016 gain to 0.1%, while the Nasdaq Composite also lost 1.3% for the week to extend its 2016 decline to 3.1%.

Investors did not receive any market-moving economic data over the past week, but with the market having reclaimed its entire slide from January on the back of increasing dovishness from global central banks, market participants began asking what that dovish tilt implies about global economic growth prospects. One did not have to look far for signs of slowing growth as the Atlanta Fed GDPNow model for the first quarter was revised down to 0.1% on Friday.

The stock market hit its lowest level of the week on Thursday during a session that was rife with risk-off moves. To that point, stocks retreated while Treasuries surged, dropping the 10-yr yield to 1.69% (from 1.79% on Friday). Furthermore, a continuation of week-long yen strength pressured the dollar/yen pair to its lowest level since late 2014 (107.68) while gold jumped into the neighborhood of its 2016 high near $1,250/ozt.

For its part, crude oil struggled at the start of the week, but a sharp rally ahead of the weekend ensured a higher weekly finish for the commodity, which closed the week just below $40.00/bbl.

Eight sectors finished the week with losses between 0.5% (consumer staples) and 2.9% (financials) while energy and health care registered respective weekly gains of 2.2% and 0.9%.