Craig Johnson’s

Market Commentary

Monday, April 14, 2014

Financial Markets Recap for Last Week:

  • Selling continued last week with Thursday’s decline the largest daily decline of the week. Friday’s selling added to the previous day’s losses. The Dow Jones Industrial Average, which hit a new high the previous Friday has held up the best of the major indices. It has dropped a bit more than 3.6% from the recent high to last Friday’s low. The S&P 500 has fallen about 4.2%, while the Nasdaq Composite has felt the greatest damage down just a tad less than 8.5%. Thursday’s drop for the Nasdaq Composite was the largest one day drop since 2011.
  • The strong growth and momentum names and sectors continue to be impacted the most from the selling, while defensive names and sectors generally experienced minimal damage.
  • The weakness in the stock market so far this year has benefitted the 20 and 30 year Treasury bonds. As the bond prices have risen, the yields have dropped to their lowest levels since July.
  • Large and mega cap stocks continued to outperform their smaller capitalization brethren. (Repeated from last week).
  • Gold rallied for the second week, but is struggling to move above near term resistance. Gold closed the week a bit under $1320 an ounce.

 

Financial Markets Health and Outlook:

  • Earnings season got underway with the first trickle of companies releasing their reports last week. Each week for the next few weeks, the number of company earnings reports will grow substantially. After the pre-earnings liquidation of stocks in recent weeks there could be some huge price pops for companies that have solid reports and exceed expectations.
  • The selling, especially on Thursday, generated some fear back into the market. This increase in negative sentiment is much healthier for the market than the over confident environment that existed just a few weeks back.
  • A huge positive for the health of the stock market is even in the face of substantial selling in the strong growth stocks there has not been a rapid deterioration in many of the cyclical sectors. This implies that there is some questioning of the rich valuations that exist and existed, but no loss of confidence in the sectors that will benefit from a stronger economy.
  • Large technology stocks such as Intel, Microsoft, Oracle and Qualcomm have been extremely strong leading some to believe that growth investors are hiding cash in those stocks while the stronger growth and momentum stocks are being hit. IBM is scheduled to report earnings this week. The stock, which had been in a thirteen month decline, recorded a low in the beginning of February and has been rallying higher ever since.
  • Gold needs to remain above the previous week’s low near $1277 an ounce to avoid turning the rally into a near term downtrend.
  • The yield range on the ten year U.S. Treasury note has had a ceiling near 3.00%, while the floor has been in the area of 2.45% for the past nine months. A break of either side of the range will likely ignite a significant move further in the direction of the break. The short term range is 2.58% at support and 2.82% at resistance.(Repeated from last week). It closed Friday near 2.62%, lower  than the previous Friday when it was at 2.73%. 

Sources: bankrate.com, bloomberg.com, briefing.com, Dow Jones News, Financial Times, finviz.com, Investor's Business Daily, marketwatch.com, seekingalpha.com, Thomson Reuters/First Call, U.S. Dept of Treasury, yahoo.com and individual company web sites and press releases.
 

Leonetti & Associates, LLC views or opinions are as of a certain date and subject to change without notice.  The material contained herein is for informational purposes only and obtained from sources we consider reliable. We make no guarantee as to its accuracy or completeness.  References to specific securities and industries/sectors should not be considered recommendations to buy or sell any security or advisory service.  Past performance is not a guarantee of future results.

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