Last week was eventually going to happen. The S&P 500 experienced its first 1% drop since 10/11/16, one percent declines typically happen every couple weeks. The failure in DC to produce any results on health care reform factored into the drawdown by casting doubt on DC’s ability to achieve results on tax reform and other pro-growth initiatives. Utilities stocks (yield orient) and bonds posted gains on the week while stocks, commodities, and the U.S. dollar were in the red.

Your Weekly Anecdotes:

  • Last week was the poorest weekly showing of the year for both the S&P and NASDAQ. It was the poorest week since the election for the S&P 500.
  • The market’s ‘low energy’ return over the past several weeks is best exemplified by the NASDAQ trading up in eight of the ten prior trading days, but still managing a loss over that period.
  • Bespoke noted the dramatic increase in ‘all or nothing’ days since the GFC, defining ‘all or nothing’ days as days where the S&P 500 Advance/Decline reading is +/- 400 (a breadth measure). From 19902005, there were just two years with double digit ‘all or nothing’ days. From 2006 forward, every single year has registered double digit ‘all or nothing’ days. In fact, only 2006 registered less than 20 and the average of all years since 2006 has been 36 days. Central bank and ETF driven markets are likely root causes of this characteristic. Of note is that the calm and sideways market of 2017 thus far seems to be bucking that trend with 0 such days thus far.
  • As markets drift from a liquidity driven advance to an earnings driven advance, earnings growth will be very important. Wall Street currently is forecasting 9.6% earnings-per-share (EPS) growth, 100 basis points above its 27-year average of 8.6%. In years in which there has been above-average EPS growth, S&P returns (excluding the financial crisis) have been 413 basis points higher than the 27-year average, according to Jeffries.
  • Based on the shift to defensive sector leadership, sentiment clearly has shifted from extreme optimism to more neutral or even a minor bearish position (AAII Bears haven’t been this bearish since February 2016)—a nice contrarian positive.
  • Fund flows have been notably balanced over the past six weeks with investors putting $31 billion into equities but also putting $49 billion into bonds over the same period.
  • Thanks to shale, the U.S. producing more oil than it has in nearly 50 years, with crude production on pace to soon top the record set in 1970. The Institutional Strategist credits Mark Papa, the oilman who helped create the U.S. shale industry and only came along 10 years ago.

Your Weekly Economic Updates:

  • Last week was a pretty light economic calendar mixed in with several Fed speaking engagements.
  • Weekly jobless claims finally disappointed. After seven straight weeks of sub 250k and 106 straight weeks of sub 300k, last week’s 258k reading came in higher than expected (240k) and was the highest weekly print since January 20th.
  • Existing home sales were on the soft side, down 3.7% in February, but still up a solid 5.4% year over year. Meanwhile, new home sales shot 6.1% higher in February, beating consensus. High end new home prices jumped 9.9% in the month and 11.7% year over year to a record $390,400 level.
  • Of note is the Atlanta Fed’s GDPNow forecast of Q1 GDP growth has edged down from 2.5% in February to only 1.0% last week.