The S&P500 reversed the prior week’s slide and jumped back up 1.8% on nothing but more hopes that the major central banks of the world would once again intervene to prop up financial markets. What also made the weekly price rise not so credible was the fact that volume was abysmally low—there was very little conviction to the melt up in prices. And volatility dipped back down, with the VIX index returning to the low end of its long-term range.
In macro news, the results were mostly weak, as usual. Personal spending only met expectations, and these expectations were only barely above zero. International trade missed. The Case Shiller home price index missed on the month-to-month 20 city report; the massive rebound in housing prices that started in 2012 is now showing signs of slowing down…..and even possibly going into reverse. Initial jobless claims were slightly worse than expected. Chicago PMI was better than expected. The big report of the week—March payrolls—was not all that strong. While the headline jobs number very slightly beat consensus estimates, we must remember that the new jobs being added month after month over the last four years have been low quality jobs (think bartenders) while high quality jobs with benefits (think manufacturing workers) have been disappearing throughout this entire period. Also, the unemployment rate went the wrong way—up. It was supposed to remain steady. And finally, the average hourly workweek missed expectations, but average hourly earnings beat them.
The technical story in the S&P500 is showing an extremely overbought market on the daily charts. The massive rebound that dominated the month of March has now pushed the S&P near the levels reached last fall when the market suddenly reversed and went on to touch new post-peak lows in February on this year. Meanwhile, the 50 day moving average is still below the 200 day, and the 200 day is still sloping downward, even if only slightly.
Finally, while the S&P500 bounced higher last week, something very different happened in the US Treasury markets. There, yields plunged….pretty much across the board. Why is this important? Because usually when stock market prices rise, Treasury yields also rise (investors sell Treasuries to free up cash to buy stocks; selling Treasuries pushes up their yields). But since the middle of March—even as the S&P500 has been rising—Treasury yields have been falling. And this completely contradicts the rise in US stock prices. More importantly, US Treasuries traders tend to me quite a bit more sophisticated than stock market traders (when have you ever read about mom-and-pop Treasury traders!?) and very often, what happens in Treasury markets turns out to be “right” more that what happens in the stock markets…..and Treasury markets tend to “lead” stock markets in terms of time.
So if Treasury traders turn out to be right and early once again, then US stock markets are about to turn down……once again.