A Tough Quarter For Stocks…

It was a tough quarter for stocks as the markets dealt with and continues to deal with the war in Ukraine, runaway inflation, rising interest rates and the seemingly never ending Covid dynamic. For Q1, both the Dow Jones Industrial Average (see chart here) and the S&P 500 (see chart here) lost nearly 5%. The Nasdaq Composite (see chart here) lost more ground closing out the quarter down 9%. Last but not least, the small-cap Russell 2000 (see chart here )  also closed Q1 down 9 %.

As mentioned above, it was a tough quarter for stocks and indexes but with the current state of global backdrop my feelings are we are quite lucky to not of experienced more of a drawdown. In fact, I am very surprised if not shocked that we did not see a 20 percent sell-off or more due to these major headwinds. So, this begs the question as to why there was not more of a correction? Could it be corporate earnings will surprise the street once Q1 earnings reporting season kicks off here in April? Or could it be that while interest rates are going up and will continue to do so, that rates are still relatively low, and money continues to get put to work in the overall markets? I do think that this upcoming earnings reporting season will be one of the most important metrics in years pertaining to whether stocks find their footing or continue to be under pressure. The one other metric I will be paying close attention to is yield curve inversion. For the first time in years the 2-year Treasury yield surpassed the 10-year and historically when that happens the chances for a recession increase. So, as you see there is much to learn over the coming weeks and throughout the summer.

Last but not least, when I look at the current technical shape of the aforementioned key indexes, all of them are trading right around their respective 20-day, 100-day and 200-day moving averages. Based on this action it is possible that we see a breakout above and/or a breakdown below these historic support and resistance lines.

Good luck to all ūüôā

~George

 

 

Bank Stocks Finally Catch A Bid!

As earnings reporting season kicks into high gear one of the sectors that are surprising investors to the upside are the banks. Citigroup (NYSE: C) started things off yesterday reporting an adjusted earnings per share of $1.24 compared to the $1.05 most analyst’s were anticipating. This earnings beat has lifted Citigroup’s stock over 3% the past two days. This morning Goldman Sachs Group (NYSE: GS) also announced an unexpected profit of $2.04 billion dollars or $4.10 per share while analysts were expecting earnings of $3.05 a share. This beat¬†sent Goldman’s shares up 2% this morning although there could be a short term technical hurdle in the $171.oo range (chart) that GS may face. Back in mid-June, Goldman had a high of $171.08 before losing 5.5%. Goldman’s shares have since¬†rebounded¬†back to the $170 zone. Should GS¬†be able to break through the $170 zone, it could very well test¬†its 52 week high of $181.13. If it cannot break through this short term resistance zone in a¬†meaningful way, then a¬†possible re-test of the mid-June lows could occur (chart). Also reporting this morning before the market opened was JP Morgan Chase (NYSE: JPM). JP Morgan reported an earnings beat of $1.46 compared to¬†$1.29 per share most analysts were expecting. This unexpected earnings beat¬†sent shares of JP Morgan Chase (chart) up more than 2% in early morning trading. Whether or not this is a short term bounce or the beginning of a new trend for the banking sector has¬†yet to be seen. I would suspect that the banking pundits will want to see a widening of yield spreads before they get too bullish.

After the bell, the focus will turn¬†to the tech sector. Both Intel (NasdaqGS: INTC) and Yahoo (NasdaqGS: YHOO) will report their quarterly results. Intel has been on a tear gaining over 20% since mid-May (chart). In my humble opinion, Intel is really going to have to crush their numbers and up forward guidance in order for their stock to keep rising here in the short term. Yahoo on the other hand seems to be trading on what Alibaba’s valuation will come out as when they go public in the near future. Two other¬†bellwether tech stocks¬†Ebay (NasdaqGS: EBAY) and Google (NasdaqGS: GOOGL) will report their quarterly¬†results tomorrow and Thursday respectively. So as you can see there are trading opportunities abound, however, my preference is to wait to see how companies report before making any trading or investment decisions. I do think this earnings reporting season will¬†dictate how the overall markets will fare in the¬†second half of this year. So far so good in this reporting season, but there are hundreds of companies yet to report so let’s not draw any significant conclusions. Also, please remember it is good practice to consult with a certified and trusted financial advisor(s) before making any adjustments to your current portfolio or making any investment decisions for that matter.

Good luck to all ūüôā

~George

A bull stampede!

Stocks are on a rampage with the Dow Jones Industrial Average (chart) surpassing and closing above the 14,000 mark for the first time in over five years. For the week, the Dow Jones Industrial Average (chart) finished up 0.89% the Nasdaq (chart) +0.93%, the S&P 500 (chart) +0.68% and the small-cap the Russell 2000 (chart) closed the week up 0.66%. For the month of January both the Dow Jones Industrial Average and the S&P 500 had its best showing in decades.

So why so much bullishness? Well for starters, before the market opened today the non-farm payroll number came out and 157,000 new jobs were added to the economy. Good, right? Not so fast. The unemployment rate actually ticked up to 7.9% in January and furthermore, the economy needs to add at least 250,000 new jobs per month in order to make a meaningful dent in the unemployment rate . So you ask, “how can this be good for stocks?” Here is the oxymoron. As long as the economic numbers remain tepid, the federal reserve will continue its stimulus program(s) which in turn bodes very well for stocks. A zero to a quarter percent interest rate environment forces money off of the sidelines that is seeking a respectable yield. This especially rings true for fund managers and institutional money managers who really must produce higher than average returns to appease their investors.

For me personally this type of market environment is very difficult to navigate. On one hand you have the fed ready to expand their balance sheet which in turn fuels stocks, and on the other hand you have a weak economy which should translate to lower equity prices. Instead, this market is making multi-year highs across the board. Without question stocks are way overbought and are due for a healthy pullback. If you dare to short this market in attempt to call a short term top, make sure you have explicit protective stops in place. The same discipline should also be honored if you open any new long positions. Going forward, I am expecting some type of pullback which would probably be met with noticeable support at least in the short term. Good luck to all.

Have a great weekend ūüôā

~George