Market Overview

End Of Q1 Trading Dawns With SPX On Pace For Quarterly Loss, Tech Licking Wounds


Hope might spring eternal as the Major League Baseball season begins today, but there’s little hope of a 10th straight winning quarter for the S&P 500 Index (SPX). Still, there are some positive vibes early on as overseas markets gained despite continued tech weakness.

The SPX enters Thursday’s session down more than 2.5 percent year-to-date after nine-straight quarterly gains. So barring a massive rally today, the quarter could very well end with losses. The last time the SPX had a losing quarter was in Q3 2015, when it fell nearly 7 percent. That was also the last time the Dow Jones Industrial Average ($DJI) suffered a quarterly loss.  The markets are closed Friday for the Good Friday holiday and then it’s April, so this is the last chance for a Q1 revival.

If back in mid-January you’d predicted a losing Q1, the response might have been disbelief. At that point, the market was chugging upward like an unstoppable force, and the Dow Jones Industrial Average ($DJI) was taking out 25,000 and then 26,000. How the tables have turned over the last two months, with the $DJI struggling just to get to 24,000. Rising rate concerns, a tech washout amid bad news for some of the sector’s biggest names, and worries about trade wars all contributed to the February and March weakness.

Once again, the new session begins with questions about whether info tech stocks can find support. Tech stocks are down about 6 percent over the last month, and are the worst-performing sector over the last week. Many of the big tech stocks were up in pre-market trading. Look out for potential volatility today, as it’s possible many traders might not want to hold positions into the long weekend.

If you’re a long-term investor (and ultimately it’s fair to say some part of our portfolio is as we all want to retire someday),  keep things in perspective going into Q2, because there’s still a lot to like about the economy. Earnings season was mainly excellent, and most analysts anticipate double-digit earnings growth going forward. The Fed remains on track for two more hikes this year, and 10-year Treasury yields haven’t made a concerted effort to hit the 3 percent level, recently trading below 2.8 percent. Jobs data looked great in February, inflation seems relatively tame, and Q4 gross domestic product exceeded most analysts’ anticipation at nearly 3 percent.

Wednesday’s session ended lower across the major indices as parts of the info tech complex again came under pressure. For, Inc. (Nasdaq: AMZN), it was a day to forget. Shares tumbled more than 4 percent but suffered even steeper losses at times intraday amid media reports that President Trump might want to reconsider the company’s tax treatment. The White House later said that isn’t true, and AMZN shares came off their lows. AMZN’s pain might have spread around the tech complex, though downtrodden shares of Facebook, Inc. (Nasdaq: FB) popped back a little. It’s interesting to see that the so-called “FAANG” stocks didn’t move together Wednesday, when they often trade in sync. Semiconductor stocks also got hit pretty hard Wednesday.

The tech sector fell less than 1 percent Wednesday, but it’s having its worst month since 2012. Most other sectors also declined, though some of the more “defensive” ones like staples and telecom posted solid gains. The overall psychology of the market has changed a lot since 2017 and early this year. Every time there was bad news last year, many investors treated it as “good” news. Now, it seems like the market treats just about any news as bad news. It’s not time to panic, but everything is being re-assessed.

Facebook popped back a little in pre-market trading, and that could be a reaction to some measures the company announced to protect user privacy. However, the tech tumble may not necessarily be over. On another note, Bitcoin got slammed overnight, losing 5 percent. It’s really fallen out of favor pretty quickly.

Data-wise, the Fed’s preferred Personal Consumption Expenditure (PCE) prices index for February rose 0.2 percent for both headline and core readings, as Wall Street analysts had expected. There’s no sign of worrisome inflation, at least at a first glance.

Volatility remains intense, as you might have noticed if you saw the early action Wednesday. The $DJI quickly jumped more than 100 points and then collapsed back to even. Looking ahead, some signals point toward the possibility of more whip-saw moves. With prices high and volatility back at normal levels after last year’s historic low volatility, it’s not too surprising to see sharp moves.

When markets are this volatile, it’s important as an investor to set realistic goals, know the recent price range of what you’re buying, keep the size of your trades consistent, and be disciplined about getting in and out of trades. The diet industry exists for a reason: People don’t tend to be disciplined. Make sure to be disciplined in your trading and investing.

At times like these, long-term investors might want to keep their eye on their retirement goals and not obsess over every headline. Though it’s important to know what the market is doing, it’s easy to get your priorities out of order if you’re tempted to run for cover when the market sinks. Over the long haul, know what your “retirement number” is and also make sure you have a balance you’re comfortable with across various asset classes (see below). That way, you may be able to keep your head down and better weather these volatile periods.

FIGURE 1: TECH TROUGH. It’s been the worst month for the tech sector since 2012. This chart shows the sector making solid gains early in March before toppling mid-month amid concerns about a number of key companies. The S&P 500 (SPX), shown as the purple line, hasn’t had a good month either and is suffering its worst quarter since 2015.  Data source: S&P Dow Jones Indices. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

More Spring in Economy’s Step?

Two reports out Wednesday seemed to hint that good times are far from over, at least as far as the U.S. economy is concerned. Most of the headlines focused on gross domestic product (GDP), which rose 2.9 percent in Q4. That kept the string of 3 percent or near-3 percent quarters going.

Pending home sales for February also showed more strength than analysts had anticipated, rising 3.1 percent compared with Wall Street’s consensus estimate of 2.5 percent. That came after a big rise in the weekly mortgage activity report earlier this week. Evidently, tight home supplies and rising mortgage rates aren’t completely shutting down housing.

Collect 200

Whether you’re trading all the time or only watching your long-term portfolio, you’re bound to hear some talk about the market’s current technical situation. It’s worth understanding better, because the SPX  is perched at an important point. The SPX managed to finish Wednesday just above its 200-day moving average, now at 2,588, and that’s a number to consider watching today. It may sound kind of technical, and it is, but even long-term investors might want to be aware of the chance for major selling if the index falls below this level and fails to quickly come back. A bounce off of the level followed by a higher close, however, could deliver some “short covering” as bearish traders turn tail. Some analysts pointed out that historically, the SPX tends to gain less when it’s trading below its 200-day moving average, though past isn’t precedent.

An Eye on Fixed Income For Long Term

When the stock market is ringing like a bell the way it has the last few sessions, long-term investors might want to make sure they have funds parked somewhere a little less volatile. That’s where fixed income can sometimes come in handy, though calm waters aren’t a sure thing with any investment. Remember to keep an eye on your diversification and consider owning some fixed income.

Information from TDA is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade.

Posted-In: JJ Kinahan TD Ameritrade The Ticker TapeNews Commodities Markets


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