Market Brief – Friday 3/15/19

With quadruple-witching day in effect, stock and bond prices headed higher. The S&P 500 broke through resistance in early trading while 10-year Treasury yields broke through support in early trading.

The Empire Fed Manufacturing survey fell in March to its lowest level since May 2017 after rebounding in February. Analysts predicted the survey would come in at +10.0, but it came back at 3.7 – a negative print is contractionary. New Orders fell, Prices Received fell and the average workweek contracted. With Prices Paid rising against lower prices received, this survey indicates tightening profit margins.

U.S. Industrial Production rose in February by +0.1% MoM against expectations of a +0.4% increase. U.S. Factory Production fell as output dropped in February, which sparked a rally in U.S. Treasury bonds, as this is the weakest factory data since July.

Stock prices have been rising this year against selling by institutional and retail buyers, as corporate share buybacks remain the last buyer of stocks. Last week investors threw $27.26 billion into the stocks which is the second largest inflow in history.

The University of Michigan reported in its preliminary consumer confidence survey that ‘Hope’ is rising. Since ‘hope’ is tied to the performance of stock prices, it makes sense the index rose in March. The closely watch current less future expectations ratio fell, which is currently at a level associated with the onset of prior recessions.

Job openings for January rose to 7.479 million, which means there are now 1.346 million more jobs available than there are unemployed workers.

After hearing traders’ comment about heightened volatility and late-day selling on quadruple-witching day, nothing of the sort happened. Trading volumes remain mediocre, although low by long-term standards. The S&P 500 closed over its resistance level without much fanfare.

The big news was with Treasury yields. Five-year Treasury yields headed lower, 10-year Treasury yields broke support and closed under 2.6%, and 30-year Treasury yields closed under their 50-day moving average.

The divergence between equities and Treasury yields is rather unusual. The two can remain divergent for a time, but one of the two is going to move in the opposite direction. Either stock prices are going to fall or Treasury yields are going to rise. Historically, Treasury yields are a leading indicator of stock prices.

Physical gold closed just over $1,300/oz but failed to reclaim its 50-day moving average. Looking at prior rallies in gold where prices eventually fell below and stayed below its 50-DMA show that gold prices are more likely to retest support than breakout to the upside. Watch $1,240-50/oz for support.

After closing over their 50-DMA yesterday, oil and gas producers closed below its 50-DMA and right in the middle of its support zone. Oil and gas producer stock prices have been following the broad equity market higher until this year, which is further evidence that the broad equity market is headed lower, not higher.

Agricultural commodities shot higher on low volume in early trading and as the shorts started to feel the squeeze, prices continued to rise on higher volume. Ideally, rallies begin on strong trading volume, but when a sector has been beaten down by repeated selling, it doesn’t need a large swatch of trading volume to move higher. In the case of the agricultural commodity sector, just a little push was needed to force short sellers to cover.