This was an important week for investors. The DOW and S&P experienced the first 3-day win streak of the year. In fact, it was the best 3-day session since last August, before the Market correction began. After a brutal start to 2016, market mechanics have improved. Leadership is coming from some of the most clobbered sectors, namely, Energy, Financials and Biotechs. After rallying strongly in 2015, Technology stocks have been hit hard in the new year. However, this week tech is finally performing well. This bounce bodes well for our high quality technology stocks. Crude oil prices continue to grind higher, with WTI (aka – West Texas Intermediate) around $30 now, after two visits to the mid $20’s, which is a multi-year low.
Interest rates are ticking higher too. The Fed minutes showed our central bank is very focused on global issues, and provided further evidence that a March rate hike will not happen. The Market has already priced-in that scenario. Earnings season is finishing up, and the tone has been mixed. Fed leaders indicated it would be “unwise” to continue raising interest rates because of declining inflation expectations and recent equity market volatility.
The European Union summit finished with a large focus on keeping the UK in the union. Many Brits want to leave. Prime Minister David Cameron headed to Brussels to hammer out a deal he can sell to British voters. He has called for reform in four areas: measures to curb migration, safeguards to protect London’s financial district, Britain to be excluded from an “ever closer union” and for greater competition in the bloc. Most officials expect a referendum to be held in late June. This is a huge risk, that should result in the UK staying in the EU, but tensions and concerns will rise as Brits get closer to the vote.
It’s been a tough environment for IPO’s. There were 175 companies that made their public debut last year, and the results have not been good. 70% of the stocks that IPO’d in 2015 are below their offering price. IN fact the average 2015 IPO stock is down 20% from its offering price. It really speaks to the skittish investor confidence. There were only 4 IPO’s in January, so not a strong start to the new year. Demand for risk is pretty weak. That’s generally a good contrarian sign.
Another positive development this week; Pitchers and Catchers reported back to work. Baseball is back beginning SPRING TRAINING… and the stock market is showing some green shoots despite the icy winds signaling winter is still hanging around. We’re all over it.
Enjoy a peaceful weekend! We will be back dark and early on Monday.
By: Mike Frazier