The market was higher on Friday, but major indices stumbled into the close, which perfectly reflected the market last week. The inability to gain traction is without a doubt frustrating, but what some are missing is that there has been resolve as well.
Last week, investors opted for safety, which lifted the high dividend paying of utility and real estate stocks.
The most compelling action came in the industrial sector, led by Deere & Co (DE), W.W. Grainger (GWW), FedEx (FDX), and my favorite United Rentals (URI). Although many are sounding the alarm on the potential impact of a tariff skirmish on industrial names, I continue to believe investors should be overweight in this sector.
The period of indecision feels strange after 2017 saw major indices higher almost every day without a trace of volatility. While there is a sense of pause, I’m not sure I would call it indifference as I have before.
According to the American Association of Individual Investors, there was a spike in bullishness last week as bearishness tumbled hard, but most investors are overwhelmingly neutral.
- Bullishness 36.8 +10.4 points
- Bearishness 21.3 -7.1 points
- Neutral 41.8 -3.4 points
Perhaps neutral doesn’t mean indifferent; maybe it means investors are waiting and ready to pounce like coiled springs. That’s the message I gleaned from a report from Bank of America that said in the past week, the most money ever poured into stock funds.
The $43.3 billion was mostly earmarked for equities outside the United States, but it’s a ton of money nonetheless.
I understand why investors are gearing up as we will soon get first-quarter earnings results, and they are supposed to be mind-boggling good. According to FactSet data, blending earnings for the quarter should come in at a 17% growth. Going into the last quarter, the Street was modeling for only an 11.4% growth.
If these estimates are correct, it would be the biggest quarter earnings growth since the first quarter of 2011. Before we can get to that, however, there’s the Federal Reserve’s Federal Open Market Committee (FOMC) gathering next week where the Fed will hike rates.
What Wall Street wants is to hear Fed Chairman Jerome Powell take questions from professionals, not those nuts on Capitol Hill that made the last Fed testimony a joke.
By the way, when investors - or even media pundits looking for truth - ask about the difference between the economy now and the economy over the previous decade, this economy is tasked with absorbing the Federal Reserve unloading assets rather than pumping trillions of dollars into the economy to support the economy.
The week of March 12 saw the Fed runoff $8.9 billion in agency notes and $5.7 billion in mortgage-backed securities. It’s a delicate situation because of the size and scope of the amounts, but also because it’s never been done before.
Today’s Session
The market will be under a considerable amount of pressure at the start of trading as Facebook faces questions on both sides of the Atlantic over reports user data was used in an unauthorized manner. To be precise, the claim is up to 50 million Facebook users were part of a “harvesting” campaign by Cambridge Analytica in efforts to sway votes on British Exit and the 2016 US Presidential election.
Right now, there is a lot of finger pointing and blaming, but this is the latest in a series of questions over how Facebook safeguards its users.
This kind of news will only hasten eventual pressure that could range from special user taxes (proposed by the EU) on big tech companies like Facebook, Google and others, to the eventual attempts to break up the giants. For now, there isn’t a chance this changes underlying fundamentals of these names, or others in the tech space, so this is yet another headline driven sell-off.
We wouldn’t be buyers at the open, but this is the kind of session that will allow us to gauge the appetite and risk-tolerance of buy-on-dip investors.