March 22, 2016

The major stock market averages held fairly steady following a terror attack in Belgium (Dow -32 pts; SPX flat; Nasdaq +.15%). It looks like two separate locations were bombed by ISIS; at least 200 people were injured. Not surprisingly, airline stocks are down about 2%. healthcare and technology sectors are modestly higher on the day. WTI crude oil is up to $41.50/barrel and Brent crude is very close to parity ($41.70/barrel). Oil’s rapid recovery flies directly in the face of most Wall Street analysts who say the actual demand/supply situation hasn’t changed at all. So the only thing that hasn’t changed is analysts’ inability to predict oil price moves. Bonds are roughly unchanged today (5-year Treasury yield 1.36%; 10-year yield 1.89%).

Now that the S&P 500 (trading at 2051) has recovered most of the ground lost in the recent selloff, the biggest question for traders is: where do we go from here? So many of the short-term investment community have been very bearish, unwilling to concede that economic data are actually getting a little better. Citigroup’s Economic Surprise Index is back up to mid-November levels. In addition, we’ve had some central banks around the world (i.e. Europe, China) reaffirm economic stimulus measures. Finally, a lot of the technical damage done in January has been healed. The index is now convincingly back above its 50-day, 100-day and 200-day moving averages. And it looks set to make a run at the next resistance level, about 2081, which is 1.5% higher.

The Federal Housing Finance Agency’s (FHFA) House Price Index rose .5% in January from prior month levels. December’s gain was revised up modestly as well. On a year-over-year basis, the index is rising at a very healthy 6.0% clip. As a reminder, this index covers only single-family home transactions with conforming conventional mortgages. This is yet another data point suggesting strong housing demand.

Markit Economics’ private estimate of US manufacturing business activity (“PMI”) edged up to 51.4 this month from 51.3 in February. While economists were anticipating a larger rebound in business activity, at least the numbers are moving in the right direction. As with other PMI data, any reading above 50.0 indicates business activity is expanding rather than contracting. Interestingly, this index has not gone sub-50 in recent months as softer global economic growth and a stronger dollar have hurt US manufacturers. A similar PMI gauge, the ISM Manufacturing Index, dipped below 50 last October and still hasn’t yet fully recovered.  

Sherwin Williams (SHW) announced a deal to acquire competitor Valspar (VAL) for $11.3bil. They say combining the two companies will yield cost savings of $280mil within two years. Despite the fact that SHW is apparently paying up for VAL, the stock is up 4% in early trading. 


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