Goldilocks, call your office

"Hey Jerome, enough with the rate hikes."

Goldilocks call your office. It doesn’t get much better than this.

At least that’s how the market seems to feel now. America’s employment situation is the best in years, inflation is low, and there could be room for even further improvement.1

First, some numbers: The S&P 500 closed back above its 50-day moving average with a 3.5 percent rally between Friday, March 2, and Friday, March 9. That was the best weekly performance since the index snapped back from it’s early-February swoon. Cboe’s fear index, the dreaded VIX, crumbled back below 14 to its least panicked level since before the crash. The Nasdaq-100 also broke out to new all-time high.

Every major sector advanced, although groups typically associated with a strong economy fared best.  Financials, industrials, technology, materials and small-caps gained at least 4 percent. It was also a good week for breadth in the S&P 500, with fewer than one-seventh of its constituents dropping.

Investors and economists called it a Goldilocks moment because of Friday’s non-farm payrolls report. Total job growth blew past estimates by more than 50 percent, while muted wage gains calmed inflation worries.2 Not too hot, not too cold. (See this post for more.) ADP’s private-sector payrolls report beat estimates, as well.

Goldilocks was also hard at work in the political arena, with investors first alarmed by President Trump’s steel tariffs but later calmed as details emerged.3 The White House followed up with plans for historic North Korea talks, calming worries about tensions with regional heavyweight China.4

There were still some bad negative headlines — factory orders, trade and consumer credit — however they were backward-looking because they covered the month of January. Jobless claims also missed estimates, but are coming off their best level in almost 50 years.

Software and semiconductors, which had done much of the heavy lifting this year, kept climbing last week. Both groups have enjoyed the economy, good earnings and the spread of cloud computing. A surge of trading activity lifted retail brokers, staffing companies basked in the strong labor market and casino operators seem to be hitting a run of rising traffic in both Macau and Las Vegas.

Insurance company XL Capital (XL) was the single best performer in the week, ripping 29 percent on its purchase by AXA. Autodesk (ADSK) followed with a 20 percent gain on the heels of good earnings. Wynn Resorts (WYNN) was third-best.

Old-school retail names found themselves on the other end of the rankings. Grocery giant Kroger (KR) led to the downside with a 12 percent drop, squeezed by (AMZN) and Wal-Mart Stores (WMT). Dollar Tree (DLTR) was battered 11 percent by the one-two punch of weak sales and rising costs. Mattel (MAT) dropped 10 percent as the potential demise of key retailer Toys ‘R’ Us draws near.5

This week’s agenda focuses on prices, housing and the consumer. Inflation’s due tomorrow morning. Wednesday brings retail sales, producer prices and oil inventories.

Thursday features jobless claims, manufacturing reports from the New York and Philadelphia branches of the Federal Reserve and NAHB’s housing index. There are also some earnings: Petrobras (PBR) in the morning, then Adobe Systems (ADBE), Jabil Circuit (JBL) and Ulta Salon (ULTA) in the afternoon.

Friday’s lineup includes housing starts, building permits, industrial production and consumer sentiment, plus results from Tiffany (TIF).

1. CNBC: Labor force increase is biggest since 2003 as many Americans finally get back to work. 3/9/18.

2. Reuters: U.S. economy creates 313,000 jobs in February; wage growth slows. 3/9/18.

3. Reuters: Trump sets steel and aluminum tariffs but exempts Canada, Mexico. 3/7/18.

4. BBC: Trump-Kim talks show US strategy is working – VP Pence. 3/9/18.

5. Reuters: Kroger’s cost of fighting Amazon saps profit, shares dive. 3/8/18. Reuters: Dollar Tree same-store sales, forecast disappoint; shares fall. 3/7/18.
Reuters: Toymakers tumble as Toys ‘R’ Us prepares to liquidate. 3/9/18.

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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.