S&P500 Range In The 2,800 For The 5th Time In 6 Months

S&P500 Range - Back Again So Soon?

S&P 500 was up 0.69% on Wednesday as it now is on a 3 day winning streak after coming off a 5 day losing streak. In those 3 days, the S&P 500 has gotten back all the losses from last week and more. The S&P 500 is now at 2810.92. That puts it back in the range it has had trouble with in the past few months.

The red circles in the chart below show the other 4 instances where it couldn’t get past this area. Part of this resistance is likely because the September record high is just above this level. Once the S&P 500 moves a little higher, it will be attracted to the September record high. Then once it hits a new record high, momentum traders will push it higher.

Investors selling in this current range are probably dubious of the S&P 500 rallying above its September high. It’s not clear the economic slowdown is over, and earnings estimates have been falling quickly. 

A positive yearly ECRI leading index growth rate and stabilizing earnings estimates during the heart of Q1 earnings season would push me to be bullish. A good earnings season would push stocks to a record high. If stocks hit a record before then, there will be extreme pressure on results to beat estimates and for guidance to be solid.

CNN fear and greed index increased 2 points to 60. If you follow this index closely, you can say the 5 day selloff last week helped the market avoid extreme greed territory. I agree that selloffs are healthy. Stocks can’t go up every day. Obviously that’s stating the obvious. But during an amazing quarter for stocks, it’s worth mentioning.

S&P500 Range - Boeing Stock Recovers Amidst Negative Headlines

Nasdaq increased 0.69%, Russell 2000 increased 0.39%, and VIX fell 2.61% to 13.41. 

It’s not a bad time to go long volatility as stocks have been on a tear while the economy is set to see less than 2% GDP growth in Q1. Once again, no sectors fell on Wednesday. 2 best S&P 500 sectors were healthcare and energy which increased 1.1% and 1.09%. 

Industrials were 3rd as they increased 0.92%. Boeing stock recovered nicely even though President Trump ordered Being’s 737 Max planes to be grounded. Boeing stock was up 0.46% on the day and increased 3.84% from the trough at 2:50 PM. Worst might be over for the stock, but don’t expect it to make records anytime soon.

S&P500 Range - Weak Growth In Online Sales, Still Takes Share

Q4 e-commerce retail sales growth was 2% on a quarterly seasonally adjusted basis. Q3 growth was revised down from 3.1% to 2.6%. This is very delayed data, so it’s not worth going into that much detail. The most interesting part of the report was that e-commerce rose as a percentage of retail from 9.7% to 9.9%.

My prediction of it hitting double digits was slightly off as we will need to wait until 2019 for that to happen. Overall retail sales growth was only 0.4% in Q4. We are at the point where all the big successful physical store retailers get a significant chunk of their business from online sales. 

Amazon can’t maintain its online sales market share as the percentage of online sales grows because it would hold a monopoly-like position. Either Amazon will be ordered to break up or the company will lose out to the competition.

S&P500 Range - Construction Spending Improves

The construction spending report in December was awful because of the housing market. Just like the retail sales report, this reading was revised even lower as monthly growth was -0.8% instead of -0.6%. Yearly growth fell from 1.6% all the way to -0.8%. That was the worst growth rate since July 2011 when construction was just recovering from the housing bust. 

Yearly construction spending growth has been in a long term downtrend since it peaked in May 2014 as it has had lower peaks and lower troughs.

S&P500 Range - The report rebounded in January. 

It’s no surprise monthly growth was a solid 1.3% because the comparison was so weak. That beat estimates for 0.3% growth and the highest estimate which was 1%. On a yearly basis, growth improved to 0.3%. That’s still much worse than the initial December reading. Housing construction was mixed. 

New single family construction spending fell 0.7% monthly and 7.2% yearly. Monthly multi-family construction spending was up 1.4%, and yearly spending was up 12.8%. Home improvements were a disaster as spending fell 0.3% monthly and 8.8% yearly.

Non-residential spending was up 0.8% monthly, but down 2.4% yearly. Transportation, office, and commercial building were strong points this month. Public non-residential spending drove this report. That’s not a great sign because it means the private sector is cyclically weak. 

It means residential investment growth could hold down Q1 GDP growth. It all depends on how February and March play out. I could see the housing market improving in March. Monthly spending on educational building and ‘highways and streets’ increased 2.2% and 11.8%. On a year over year basis, they increased 8.1% and 12.7%.

S&P500 Range - Yearly PPI Inflation Falls

In tune with the CPI report, yearly PPI fell anyway you look at it. Monthly headline PPI in February was 0.1% which missed estimates for 0.2% and was higher than last month’s 0.1% decline. Yearly headline PPI fell from 2% to 1.9%. 

Without food and energy PPI was 0.1% monthly which missed estimates for 0.2% and was below last month’s price growth of 0.3%. PPI less food and energy fell from 2.6% to 2.5% on a yearly basis. Without food, energy, and trade services, PPI was 0.1% monthly. It missed estimates and January’s reading of 0.2%. Yearly inflation fell from 2.5% to 2.3%.

Trade services prices fell 0.4% after increasing 0.8%. Transport services were down 1.3%, putting total services prices flat for the month. Good prices were up 0.2%. Prices for light trucks fell and autos prices increased for the 2nd straight time. Food prices fell 0.3% and consumer food prices fell 0.4%. 

That’s way different from the CPI report. Since PPI leads CPI, we could see food inflation weaken. That would suppress headline inflation.

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