Even If We’re Just Dancing in the Dark

One step up and three steps back.  That’s the recent stock market as prices, after reaching a high for 2016, have declined for the past three weeks.  The good news, however, is that the total loss during this time was only 2.2%.  This is compared to the average loss of 6.3% in the 72 other three consecutively weekly declines since 2000.[i]
This stock market two-step has also been a daily dance.  For example, last week the Dow Jones Industrial Average climbed 222 points on Tuesday, gave it back on Wednesday (down 217), and fell another 185 to close out the week on Friday.  It seems neither the bulls nor bears have the ammunition to move the market out of the trading range that began in March.
This range has been defined by 2,100 as a ceiling for the S&P 500, which was reached in April.  The lower floor is 2,040 which has been tested three times, most recently last week.  The short-term and intermediate direction of the market could be determined by a break out of this range.
2016YTD
Dow Jones Industrial Average  +0.6%
S&P 500                                    +0.1%
Nasdaq Composite                     -5.8%
Russell 2000                              -2.9%
 Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends
While the major indexes have been moving back and forth, some market sectors have been more one directional.  The Dow Jones Transportation Average has plunged 7.4% in the last 3 ½ weeks.  The retail sector ex-Amazon has been one of weakest areas of the market.  Macy’s, Kohl’s, J.C. Penney, and Nordstrom’s all reported weak 1st quarter sales last week.  Furthermore, the forward guidance was lowered across the board.  The department store group fell 16%.
However, this is not a consumer obituary.  April retail sales were released on Friday and they were up 1.3% which was above expectations.  Actually, the April increase was the best gain since March 2015.  So where is money being spent?  Gas, groceries, and restaurants/bars saw healthy sales numbers but the real leader has been online sales.  As a comparison, according to LPL Research, department store sales in April totaled $13.3 billion while ‘non-store’ (online) retail sales totaled $45.2 billion which represented a 10% year-over-year increase.  The $13.3 billion of department store sales in April 2016 is a DROP from the $14.1 billion of January 1992!!  That’s an amazing 24 years with no growth.  Money is getting spent but it’s not going into the cash registers at department stores.[i]
Given the overall choppiness together with some weak parts of the market, precious metals and oil have been steadily moving from lower left to upper right.  The gold rally has been helped by negative interest rates as securities with negative yields are less competitive.  Also, worries over BREXIT and lower confidence in global central banks have increased buying as a safe haven.  Furthermore, George Soros announced his fund took a large position in gold via miner Barrack Gold Corp.  As part of the same filing, Soros increased his short position in the S&P 500.
Predictions of supply-demand becoming more balanced has pushed the price of oil back in the mid $40’s.  Recent developments include fears of supply disruptions because of Nigerian violence and the wildfires in the Canadian Oil Sands region.  Also, Goldman Sachs, who has been pretty bearish on crude oil, increased their 2016 price target to $50 per barrel.
The capital markets’ indecision is partially a result of the uncertainty over corporate earnings growth.  Economic growth has been weak so revenue and earnings growth is a challenge.  With valuations currently near the top of most methods of measurement, a stronger economy and visibility on expanding earnings will be needed for stocks to convincingly breakout of the trading range.
Of course, global central banks and monetary policy impact the economy.  Concerns over U.S. interest rate increases and the end of easing initiatives have contributed to the stock market’s sideways trade.
Recent Federal Reserve banter increases the possibility of the another rate hike as soon as the June meeting.
This alternating action on a daily or weekly basis will end at some point and prices will breakout.  Whether that is a move up or down, markets will probably begin a sustained move as all traders are waiting for this range-bound market to finally decide its future direction.

[i] LPL Research, May 16, 2016

[i] Ryan Dietrich, CMT, May 16, 2016
Jeffrey Kerr is a Registered Representative of and securities are offered through LaSalle St. Securities LLC, member FINRA/SIPC. Mr. Kerr is an Investment Advisor Representative of and advisory services are offered through Kildare Asset Management, a Registered Investment Advisor. Kerr Financial Group and Kildare Asset Management are not affiliated with LaSalle St. Securities LLC.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Past performance is not indicative of future results. Investing
involves risks, including the risk of principal loss. The strategies discussed do not ensure success or guarantee against loss. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. Trading of derivative products such as options, futures or exchange traded funds involves significant risks and it is important to fully understand the risks and consequences involved before investing in these products. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. If assistance is needed, the reader is advised to engage the services of a competent professional

Mr. Kerr is an Investment Advisor Representative of advisory services offered through Kildare Asset Management, a Registered Investment Advisor.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Past performance is not indicative of future results. Investing involves risks, including the risk of principal loss. The strategies discussed do not ensure success or guarantee against loss. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks.  The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index.  Trading of derivative products such as options, futures or exchange traded funds involves significant risks and it is important to fully understand the risks and consequences involved before investing in these products. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. If assistance is needed, the reader is advised to engage the services of a competent professional.
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