Spent last week in The Big Apple. What a town. If you could choose a city to represent a nation. To convey its ambitions, strengths, faults, foibles. Yet engender pride in her denizens and envy among her visitors, look no further. New York, New York.
Truly one smart, brash, ambitious, hard-working, industrious, big, beautiful and bad-ass city. When al Qaeda struck New York? Poor planning. For they chose an American city capable of absorbing, contending with and recovering from such tragedy in admirably short shrift.
One World Trade Center? Magnificent. Central Park? Resplendent. Broadway? Ingenious. And those calling New York home represent such a rich tapestry of character, personality and motivation that I was invigorated simply walking her streets.
Top of the list. King of the hill. A number one. New York, New York.
Stocks careened higher after the Easter holiday. Paying no mind to much of any news beyond the dovish trappings of the Fed.
After the stock market's odious start to 2016, these last few weeks have been hotter than a sinner in church. A glance at the big picture, however, reveals the work that lay ahead for bulls.
On three separate occasions the last twenty years, stocks have enjoyed a protracted run only to form rounded tops and drop like expletives from a sailor's mouth. Looking at the chart above, we see that pattern taking shape now. Begging two questions. First, can bulls push through resistance established by the dome formation? Or, will stocks repeat their path since 1996 and plumb to lower depths? If the former, then bulls will require a Yeoman's effort. As opposed to wilting under pressure as they have of late.
Adios, Q1. After falling more than 10 percent to start the year, stocks rose as much as 12.7 percent since mid-February.
The S&P 500 finished Q1 like American Pharaoh on the fourth turn at Churchill Downs. Gaining +6.8 percent in March after losing 6.6 percent over the preceding three months. Since peaking on Thursday, May 21st last year at 2131, the S&P 500 has dropped 0.9 percent through the end of last week. So continuing this mercilessly sideways trend line in place since 2014.
Only 61 percent, or 304 of S&P 500 stocks, were trading above their end-of-2015 prices. The bigger picture, however, reveals how far we've come. As of end of Q1, the total market capitalization of the US stock market was $23.7 trillion. Compared to a mere $8 trillion at the bear market low in 2009. That's resilience.
The top performing asset classes in Q1? Lean hogs (+35.2 percent). Gold (+16.5 percent). Utility stocks (+15.7 percent). Brazilian stocks (+15.5 percent). And telecom stocks (+15.1 percent). Otherwise, the S&P 500 ended flat, posting a meager 0.08 percent gain. And Japan, China, Argentina, Germany, Italy and natural gas got smoked.
So, what'll it take to send stocks higher? Earnings growth, silly. Which, as we point out below, may be a ways out. So brace yourself. Because markets could be looking for reasons to sell off. As this summer's political conventions and then the mad dash towards November's finish line promise to bring plenty of excitement. Not all of which will be the good kind. And combined with any sudden exogenous events? Caveat investor...
Which brings us to Greece.
Remember Greece? Little Mediterranean nation? Great olives? Wine? Baklava? Almost blew up Western civilization last July? Only to decide last minute to accept a debt deal from its Northern European overlords? Yea, that's the one.
Turns out there is some disagreement between the EU and the IMF over fiscal targets and debt sustainability. An internal IMF leak suggests that the fund may threaten to not participate in the third bailout, so to force the issue of debt relief. Which Germany has repeatedly rejected the need to discuss further.
Greek stocks sank on the news. As might global stocks. If, in fact, we have a real controversy on our hands. All of which could be just the thing to reintroduce complacent investors to global risk. And give investors a reason to give up recent gains.
Counter intuitively, Greece may be back in the doldrums, but emerging markets have crept back on our radar. For this asset class replete with tomorrow's up-and-coming developed markets was long Broadway's shining star before falling out of favor with critics these last five years. Today, many EM markets are oversold and undervalued. Portending flashing lights for hearty contrarians. Time to start nibbling at the edges?
Economically, February factory orders fell. Core capital goods posted a steep decline. Which, when combined with other economic data, continues to portend evidence of slowing Q1 economic conditions.
Don't despair, however. As March appeared more sanguine. Most compelling? Labor force growth. The total of which has jumped by 2.2 million the past year. That's the largest increase since 2007-08. The labor force is growing faster than the population. And the labor participation rate -- which bottomed at 62.4 percent back in September, the lowest since the late 1970s -- has climbed back to 63.0 percent.
Still low by historical standards. Nonetheless, it reveals that economic growth is finally surpassing the loss of workers due to retiring baby boomers. And outshining the allure of more generous government handouts for those not working.
For that we can thank faster wage growth. With average hourly earnings up 2.3 percent the past year. Q1 saw earnings rise 2.7 percent annualized. And with gas prices keeping inflation down, such earnings increases go much further.
Also, March ISM non-manufacturing index, new orders and business activity increased sharply in March. The employment index moved into expansion territory.
Overall, 12 of 14 industries reported growth in March, with Arts/Entertainment and Transportation/Warehousing the only industries reporting contraction.
So, even as events overseas rattle newswires, one cannot help but revel in recent domestic data. If upcoming Q2 earnings can serve up an upside surprise, we may have all the ingredients for a rally.
Stay tuned.
Weekly Results
Major markets finished up last week. The DJIA gained 2.26%, the S&P 500 jumped 1.35%, and the NASDAQ rose 0.99%. Small cap stocks gained 1.30%. Also, the 10-year Treasury bond yield fell 10 basis points to 1.88%. Gold finished up $4.87 per ounce, or 0.39% last week.
