Last Week in Brief: April 11

April 11, 2014

Brace yourselves, ladies and gentlemen. For this week ought be a humdinger. Key economic data. Important Q1 earnings reports. Options expiration week. A holiday shortened trading week. Atop an already edgy market. Fasten your seat belts. And doff a helmet, should you own one.


If earnings are poor, headlines will report that stocks are expensive and the economy is weaker than thought. Volatility will jump. And it usually does anyways during options expiration week.


Markets, having already broken through the 1840 resistance level, could end the week markedly lower. 1805 would be the next test. Following that, mid-1700s.


Conversely, positive earnings reports would sate investor sensibilities. Volatility will decline. All of which would calm edgy investors.

The Good


Alcoa kicked off earnings season on a positive note on strong aluminum demand. Representing a victory for Q1 earnings, as well as the economic environment, as a whole.


The Fed clarified its timing on short-term rate hikes, calming nervous markets.


Given the sound and fury surrounding healthcare reform, it does appear that fewer people are going without health insurance, reports a Gallup survey.


Jobless claims hit a seven-year low -- always equity positive.


Finally, even as Michigan consumer sentiment beat expectations, the American Association of Individual Investor's (AAII) bullishness index dropped to 28.5%, a bullish indicator that should buoy the spirits of all contrarians.



The Bad


Sharp reversals within tech and biotech stocks have led markets lower as both sectors have given back some of their recent gains.


China's trade data was down 6.6% year over year.


Technical market indicators are flashing red as a number of moving averages have been breached. Some of our more aggressive equity positions have triggered their sell stops and have moved to cash. As the mood sours, selling increases. Add that to the confluence of events this week (noted previously), and one understands this week's potential for market cap evisceration.



The Ugly


Rumors have it that the NSA has been aware of the Heartbeat Bug that you've recently heard of. The one that compromises passwords and online transactions. Bloomberg is reporting that the NSA chose to exploit, as opposed to reveal, the intelligence had on it for years. Article here.


Also, violence in Ukraine escalated over the weekend as pro-Russian demonstrators seized police stations and government buildings. Reports abound of gunfights between Ukrainian security forces and pro-Russian demonstrators. One officer has been killed. Several, wounded.


With Russian troops sitting on the border, and Kiev looking to re-establish control of a fragile situation, the chances of civil war escalate daily.



The Bottom Line


While the current pullback has spooked investors, the odds for near-term recession remain extremely low (here). Bonds continue to beat stocks on the year, though we caution investors against aggressively pursuing that meme as the trend could reverse as quickly as it began.


Stocks will likely be choppy through much of April, until some catalyst brings a pre- to early May reversal.



Weekly Results


Major markets finished lower last week. The DJIA fell 2.35%, the S&P 500 lost 2.65%, and the Nasdaq dropped 3.10%.  Small cap stocks declined 3.64%.  And the 10-year Treasury bond yield fell 9 basis points, finishing at 2.63%. Gold rose $14.77 per ounce, or 1.13%.


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