Stocks had another volatile day, in one of the most volatile weeks in a long time. After a big gap down to start the day as global purchasing manager index data came in weak, a better than expected U.S. ISM Manufacturing report caused the market to rip higher, gaining some 15 S&P points in about an hour. In the end the S&P 500 added 0.23% and the NASDAQ 0.3%. In this hectic week that began with a major selloff, the indexes actually both gained ~0.2% when it was all said and done.
The pace of growth in the U.S. manufacturing sector edged up to 54.2 from 53.1 in January, exceeding forecasts for a pullback to 52.5. A reading above 50 signals expansion in manufacturing.
There was also a huge drop in personal incomes reported pre-market but part of that was due to the payroll tax holiday ending on December 31st.
The S&P 500 rallied back to the underside of this ascending channel it had been in since November. Except for one session all the rallies the past two weeks have taken the index just to scratch the surface of this line as stubborn bulls continue to buy any dip.
The NASDAQ – nothing new here – is stuck between its two old highs.
We continue to see strength in the defensive sectors – you can see healthcare and consumer staples continue to be in “bull flag” formations.
On the commodity front, copper and oil are “bear flagging” which usually does not happen with such equity strength. There are a lot of negative divergences forming in the market but it certainly has not rolled over. If this is an intermediate term top, they usually take time to form versus most bottoms which are sudden. If however this is just a rotational moment where safety sectors dominate while cyclical sectors rest, we should see new highs in equities rather soon.
Precious metals continue to be in death spirals.
In stock specific news, we mentioned Groupon (GRPN) earlier this week after a poor earnings report. Well it was the icing on the cake to push the founder and CEO Andrew Mason out the door. As usual investors saw this as a positive but a bad business model is a bad business model.
Groupon Inc. fired Andrew Mason on Thursday, one day after the company reported another disappointing quarter amid worries that people are tiring of the restaurant, spa and Botox deals that Groupon built its business on. Mason’s firing has been “fairly widely expected” given the company’s performance, and the surprise was how long it took, Gartner analyst Michael Gartenberg said. But a new CEO may not be enough to tackle all of Groupon’s problems. “The question is whether this as a business model can last,” Gartenberg said. “It’s easy to replicate and under a lot of pressure. The question is where the company goes from here…. Clearly something wasn’t working, isn’t working.”
Next week will be another week heavy with economic data and central bankers – both the ISM Non Manufacturing report and monthly employment data will be released, and a slew of central bankers in Europe and Japan will meet.