Daily Market Notes: 3-19-2021

How many times have I warned lately that when the VIX gets down to that strong support level in the mid-19 area, the only way for it to correct itself is to go higher and unfortunately when this happens, the stock market has to go lower.

So when the VIX got down to 19.23 during Wednesday’s strange post- Fed dramatic upside turnaround, things were being set up to fail and boy did they ever yesterday, as another negative neurotic obsession with interest rate increases put tremendous downside pressure on the former high technology leaders and despite an attempt by the Dow to do better, there was just too much negativity from all other parts of the market that prevented the Dow from going the distance on its own. And this was despite the best efforts of unstoppable GS, HD, JPM, 3M and UNH from making large gains again while BA finally gave it up after its recent strength. And this all took place after the Dow had been higher for 9 out of the prior 10 sessions.

And when it went from a nice but lonely gain of 212 while the rest of the market was flashing red, to a 2:30pm into negative territory on its own, that was all she wrote on the downside, as the other indices just cratered lower with no help from anywhere as the S&P went from its best showing of only 5 points lower to a complete disaster of down 58 to 3915.

The Nasdaq, for reasons told too often lately, could not deal with the 10-year yield up to 1.75% which did ironically ease back to 1.71%, the highest since January 2020 while the 30-year bond got up to 2.47% for its highest yield since late in 2019. It completely collapsed from its “best “ level of down 141 to a horrible closing 409 point loss down to 13,116. It was its second-worst showing this year and heading potentially to its third weekly decline in the past four, which just goes to show how the influence of higher interest rates has taken its toll on this formerly darling sector.

And the Russell 2000 Index of small stocks did not do much better with its own 68 point decline down to 2267 while breadth numbers were abysmal at a negative 1 to 8 downside ratio. And talking about the VIX, it loved this negativity and went from that too low to sustain further stock advances of 19.23 to end at 21.58. And today is “quadruple witching day” which happens on the third quarterly Friday with the simultaneous expiration of all sorts of futures and option contracts on individual stocks and indices, so this should be a fun end of day coming up.

And how about crude oil prices, which declined for the fifth day in a row after their tremendous rally this year, and may I ask what is so terrible about lower energy prices as they act sort of like a tax cut for consumers. It ended at $59.40 a barrel and I believe that the fair value for this product is probably in the $40 – $50 a barrel range. Despite the large setback, this sector is still the best performer in the S&P with a gain of 29%.

The market’s pullback reversed and then some of the gains from a day earlier, when the S&P  and Dow hit all-time highs after the Federal Reserve said U.S. economic growth should rebound to 6.5% this year, the strongest since the 1980s, and inflation will climb above 2% for the first time in years.

Investors have worried that if inflation picks up, central banks might respond by raising interest rates, which would cool economic growth. But Fed Chairman Powell’s comments at the news conference appeared to re-assure them. Fed officials have said they would let the U.S. economy “run hot” to make sure a recovery is gaining traction.

The U.S. economy still has a lot of recovering to do, as weekly jobless claims rose to 770,000, remaining well above historic norms for that metric.

Investors are betting the economic malaise will dissipate as spring arrives and more Americans get vaccinated against the coronavirus. The $1,400 stimulus checks the Biden administration began sending to individuals last weekend are helping. Fed policymakers foresee unemployment falling from 6.2% to 4.5% by year’s end and to 3.9% at the end of 2022.

Earnings growth for this year is projected to be higher by a very strong 43% advance while the Fed now sees G.D.P. growth of 6.5%. Earnings for the fourth-quarter of 2020 are just about done and we will soon start to see results for the first-quarter of 2021 for those companies whose fiscal quarter ended on January 31st. The lineup is as follows: yesterday- WSM, FIVE, ACN, SIG, UPST higher and DG, RIDE were lower; today- Dow component NKE lower while FDX is higher.

Economic reports will see: yesterday –  weekly jobless claims rose to 770,000, March Philadelphia Fed Manufacturing Index rose to an astounding 51.8 which was the highest since 1973 would you believe it and the prices paid component rose to its highest level since 1980, February L.E.I. was up by 0.2%

Donald M. Selkin

Chief Market Strategist
 

Disclosures:

Don Selkin is the Chief Market Strategist at Newbridge Securities Corporation, member FINRA/SIPC and provides the Fair Value analysis for CNBC each morning. The commentary provided in this Market Letter is intended to provide our current or potential customers with timely market analysis and should not be considered a research report. This Market Letter may contain, and is limited to: Discussions of broad based indices; Commentaries on economic, political or market conditions; Technical analysis concerning the demand and supply for a sector, index or industry based in trading volume and price; Statistical summaries of multiple companies’ financial data, including listings of current ratings; and, recommendations regarding increasing or decreasing holdings in particular industries or securities. This Market Letter does not make a financial or investment recommendation or otherwise promotes a product or service of the firm. This Market Letter contains only news, facts, and commentary on information previously reported from a news source believed to be accurate and reliable by the author. These news sources include the following: {Bloomberg Financial, Reuters, and Associated Press}. It is possible that at any given point in time, the author, Newbridge Securities, or one or more of its employees or registered individuals associated with Newbridge Securities, may hold a position, either long, or short, as well as options, bonds or other instruments in the companies mentioned in this report.