Market Overview

Stocks Just Fell For A Third Consecutive Week, But Does The Market Deserve The Benefit Of The Doubt?

Related GS
Trump Stocks Get A Price Check
The Market In 5 Minutes
Stocks Rebound From Heavy Losses, Nasdaq Break-Even; Snap Gets 'Buy' Rating (Investor's Business Daily)
Related JPM
How You Should Diversify Your Portfolio, According To A 50-Year Wall Street Veteran
Despite Many Factors Stacking Up Against JPMorgan, Rafferty Capital Wants You To Own The Stock
Stocks Rebound From Heavy Losses, Nasdaq Break-Even; Snap Gets 'Buy' Rating (Investor's Business Daily)

Stocks fell for a third consecutive week as the market pauses to consolidate the latest and very strong rally.

As a quick refresher, the benchmark S&P 500 vaulted 7 percent from February's low of 1980 to February's high of 2119. Remember, in "normal" (non Easy Money) days, a 10 percent rally for the entire year was welcomed.

So, clearly 7 percent in under a month is a strong run and the market has earned the right to pullback and digest that move.

That is exactly what is happening on Wall Street and so far the action remains healthy (for now). The market has not experienced a 10 percent correction since June 2012. That is a very long time and it's possible the market is way overdue for a nice correction to shake out the weaker hands.

Related Link: How Crude Oil Hits Stocks Where It Counts

Also worth noting, nearly every major central bank in the world continues to adopt a very strong easy money stance which should be bullish for stocks down the road. In very strong bull markets (present market included) weakness should be bought, not sold (i.e. buy the bounce after the dip).

It is important (and healthy) to note that the small cap Russell 2000 index closed higher last week.

The Russell 2000 tends to act as a leading indicator for the broader market -both up and down.

Mon-Wed's Action: Another Shallow Pullback

Stocks edged higher on Monday as buyers showed up to defend the S&P 500's 50 DMA line. The ECB officially began its version of QE. Reports suggested that the ECB was buying German and Italian bonds.

Shares of Apple Inc. (NASDAQ: AAPL) jumped after the tech giant held its latest product launch and introduced the highly anticipated iWatch.

The company also announced a partnership with HBO and a new Macbook notebook computer. The most expensive iWatch will cost $17k. But really, for Apple, what's 17k among friends?

In other news, General Motors Company (NYSE: GM) announced a $5 billion share buy-back plan which helped the stock rally over 3 percent.

M&A watchers saw a little action. Alcoa Inc (NYSE: AA) said it planed to acquire RTI International Metals, Inc. (NYSE: RTI) for $1.5 billion. Separately, shopping mall operator Simon Property Group Inc (NYSE: SPG) made a $16 billion bid to acquire Macerich Co (NYSE: MAC).

Stocks opened sharply lower on Tuesday after WSJ reporter Jon Hilsenrath said: "It is clear by now officials intend at the March 17-18 meeting to drop the "patience" language from the statement."

In other news, analysts lowered their Q2 earnings estimates for S&P 500 stocks to negative territory. Analysts lowered their Q1 estimate to -2.6 percent and Q2 to -1.8 percent. For 2015, earnings are expected to grow by 1.1 percent.

The sharp decline is due to the massive run in the US dollar. The U.S. dollar soared another 1 percent and hit a fresh 12-year high as the euro plunged below $1.08 for the first time in 8 years as the ECB officially began QE in the euro zone.

In other news, oil prices plunged 2 percent which is not healthy for the global economy. Stocks were mixed on Wednesday as the Euro plunged to $1.05, a 12-year low vs the U.S. dollar.

European equity markets rallied nicely, with Italy, France and Germany all posting 2 percent gains.

Thurs & Fri's Action: Stocks Edge Lower

Stocks soared on Thursday after the Fed released the latest round of bank stress tests and South Korea's central bank unexpectedly cut rates.

Citigroup Inc (NYSE: C), Goldman Sachs Group Inc (NYSE: GS), JPMorgan Chase & Co. (NYSE: JPM) and Morgan Stanley announced capital return programs via buy-backs and dividend increases. Bank of America Corp (NYSE: BAC) did not fare well.

South Korea's central bank jumped aboard the easy money train and announced a surprise cut in its seven-day repurchase rate, taking it down to 1.75 percent.

Stocks fell on Friday as investors digested the latest round of economic and earnings data. U.S. producer prices slid by 0.5 percent in February which shows that deflation remains more of a threat than inflation. U.S. Consumer sentiment also fell which bodes poorly for the ongoing economy.

Separately, Russia's Central Bank cut rates to help stimulate their economy as the US dollar continued to soar and Crude oil (and a slew of other commodities) plunged.

Market Outlook: The Central Bank Put Is Alive And Well

Remember, in bull markets surprises happen to the upside.

This has been Sarhan Capital's primary thesis since the end of 2012. This very strong bull market is aging (celebrating its 6th anniversary in March 2015) and the last two major bull markets ended shortly after their 5th anniversary (1994-March 2000 & Oct 2002-Oct 2007).

To be clear, the central bank put is very strong and until material damage occurs, the stock market deserves the longer-term bullish benefit of the doubt.

The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

Posted-In: Opinion


Related Articles (AAPL + AA)

View Comments and Join the Discussion!