February 2010 Market Wrap
March 17th, 2010
After a somewhat surprisingly weak January, February brought the bulls back. For the S&P 500, there were twelve up days and seven down days in February. On the up days, the headlines were something along the line of, “Stocks Rally as Concerns about Greece Fade” or “Stocks Rally on Economic Optimism”. On the down days, headlines were just about the opposite. There was a three-day period early in the month during which the Major Averages fell to their 2010 lows (so far). At their extremes, these corrections from the 2010 highs were: Dow 30 -8.34%, S&P 500 -9.21%, Naz 100 -9.68%, and Russell 2000 -10.58%. These were similar corrections to what occurred in June-July 2009 when the Major Averages corrected as follows: Dow 30 -8.91%, S&P 500 -9.09%, Naz 100 -7.74%, and Russell 2000 -11.63%. It seemed that as soon as one of the Major Averages reached a 10% correction level (again), buyers decided (again) that 10.58% was enough of a pull-back and sentiment abruptly improved as the “glass is full and spilling over” crowd took charge once again.
Following the 2010 lows on February 5, the Major Averages reversed and have rallied as follows: Dow 30 +7.91% (March 9 high), S&P 500 +9.93 (today), Naz 100 +12.13 (today), and Russell 2000 16.71% (today). Naz 100 and Russell 2000 set new bull market highs today and the S&P 500 is quite close to a new bull market high.
Looking at the broader “health” of the Averages, Naz 100 is the most technically entrenched in its bull trend. 1773 is a 61.8% upside retracement of the 2007-2008 bear market (cycle low came on November 21, 2008). The index traded up through 1773 on October 21, 2009. As for the Russell 2000, 660 is the 61.8% upside retracement level of its 2007-2009 bear market (cycle low came on March 5, 2009) and the index traded up through this level on March 5, 2010. These levels for the S&P 500 and Dow 30 are 1229 and 11,246, respectively. As positive as the downside non-confirmation was when three of the four Major Averages held above their 10% correction levels, stalling and reversing down from well-below respective 61.8% retracement levels for the Dow 30 and S&P 500 could turn out to be equally negative.
The Economy
· Preliminary Q4 GDP came out on February 26 at +5.9%; above the consensus estimate of +5.7%. In stark contrast to Q3 when Preliminary and Final estimates progressively contracted, Q4 Preliminary GDP expanded from the Advanced estimate of +5.7%. The strength, according to Bloomberg, came primarily from “a slowing pace of inventory destocking, a deceleration in imports and an upturn in non-residential fixed investment.” In essence, demand did not pick up but general production did (slowing pace of inventory de-stocking). Final Q4 GDP comes out on March 26.
Employment
· On March 3, ADP reported February Employment of -20,000 (est. was -20,000). January Employment was revised from -22,000 to -60,000. This was the eleventh consecutive month-over-month improvement in the series but also the twenty-fifth consecutive month of job loss.
· On March 5, BLS reported Non-Farm payrolls for January at -36,000 (est. was -50,000). December and January numbers were revised with an aggregate effect of 35,000 fewer jobs lost than previously reported.
· Unemployment came in at 9.7% (est. was 9.8%).
What’s Next?
Optimistic and hopeful remain the operative words and best description of current investor sentiment. Jobs data coming in “less-bad” than expectations have, so far, kept the bullish camp quite content. Expectations are growing, almost by the day, that jobs will be growing by leaps and bounds any month now. At some point (we think that point will be sooner than later), investor’s collective patience in waiting for job growth will simply run out.