The Empire Strikes Back - InvestingChannel

The Empire Strikes Back

This week’s volatility combined with Thursday’s rally reminds me of early 2000 when the dotcom sector was experiencing outsized gains and losses. It may be that the high volume sell-offs of recent days led to oversold conditions.

Thursday’s economic data dump featured Jobless Claims which were much worse than expected 348K vs 327K exp & prior 329K; and, Pending Home Sales imploding at -8.7% vs -0.5% exp & prior -0.3%. Much of this was attributed to weather as pundits learned late that winter had actually arrived.

Economic data released Thursday featured GDP growing at 3.2% for the final quarter of 2013. This was against the prior quarter at 4.1% and year 2013 at 1.9%.

Consumer Metrics Institute summarizes the GDP data as follows:

— The headline unemployment numbers mask a major deformation of the work force — with fewer people choosing to look for work and more being forced to accept multiple part time jobs. People on the street understand the difference between an increasing quantity of part-time work and the quality of full-time jobs.

— Real per capita disposable income was down -0.85% during 2013. And to maintain the prior year’s standard of living, the household savings rate plunged 2.3%.

— For many households (and especially the 18-35 demographic) the Affordable Care Act (aka “ObamaCare”) will result in increased net monthly outlays for health insurance.

— The per capita numbers continue to mask an ongoing shift in income distribution : although the average per capita income data has grown some 3.3% since October 2008 (per the BEA), the median household income has shrunk some 7% over that same time span (per Sentier Research ). The typical member of the electorate lives at the median, and they are not sharing the growth reported by the BEA.

On the surface these were nice numbers, enough to satisfy the Federal Reserve that more of the same lies ahead. Unfortunately, most households would probably prefer something far better than an extension of that “same.”

Taken together economic data was a disaster. But equity markets rallied and surely you must wonder why. The truth of the matter is markets were short-term oversold, some earnings news was brighter (Facebook the standout) and it seems the previous meme “bad news is good” has resurfaced with those believing the Fed must still have their backs. Also, we should note as the first month of the year will end tomorrow, there’s some serious window dressing at work from those who must post better numbers.

Earnings aside from Facebook (FB), surely markets are made of more than just one stock, included misses from 3M (MMM) and Exxon (XOM) while others beat like Cardinal Health (CAH), Time Warner (TWC), United Parcel Service (UPS) and Visa (V) which I like to call the company store.

Basically an oversold rally even though economic data Thursday was, well, terrible. Sure, investors liked the less than expected GDP report but beyond that and Facebook (FB) there wasn’t much to cheer about except for some end of month window dressing.

As indicated markets rallied sharply and leading sectors included Tech (QQQ), Internet (FDN), Social Media (SOCL), Biotech (IBB), Transportation (IYT), Small Caps (IWM), Consumer Discretionary (XLY), Utilities (XLU), Solar (TAN), Emerging Markets (EEM), Turkey (TUR), India (EPI), Brazil (EWZ), Russia (RSX) and so forth. Underperforming was Gold (GLD), Gold Miners (GDX), Natural Gas (UNG), Bonds (TLT) and so forth. So, you get the idea that everything reversed course Thursday.

Our staff also puts together the daily top 40 ETF market movers by percentage change in volume for gainers, decliners and emerging volume. This is a tool that investors can use to shorten their search for suitable ETFs.

Volume was half Wednesday’s large selloff. Perhaps sellers were washed-out. Breadth per the WSJ was positive.

 

The comeback rally Thursday lacked some volume but perhaps selling was washed out and markets oversold. Toward the day’s end the rally sort of exhausted itself but Friday is the last day of the year and bulls will want to do some window dressing.

Earnings after the bell were mixed as Google and Chipotle rising while Amazon fell. Earnings Friday will focus on Baidu, Tyson Foods, Dominion Resources, MasterCard, Simon Property Group and Weyerhaeuser.

Friday will feature economic data including Personal Income & Outlays, Employment Cost Index, Chicago PMI and Consumer Sentiment.

Let’s see what happens.

Become a premium member now. Follow us on twitter and become a fan of ETF Digest on facebook .