Investment Insights

 — Steve Orr 

At a Glance

• U.S. data ok; January weather effects
• Breadth weaker, but not smelly
• Earnings solid +15%, 2025 growth marked lower
• Bond yields tilting lower thanks to tariff and weather worries

Peaking over

Another week, another couple of highs for the S&P 500. The big index stands alone reaching for new highs. The all-time-high headlines are a bit deceptive, however. Mr. Market’s Wall of Worry grew toward the end of last week, pushing the S&P down 2%. On the open Monday the big index sat roughly at Thanksgiving levels. In other words, you would have done better in cash over the same span. What about our other indices?

Surprisingly, they do not share the same fate. The charts tell us that the NASDAQ, S&P Mid Cap and Russell 2000 Small Cap have shuffled aimlessly near their highs set last December and November. Even the Magnificent 7’s most recent high was set on December 17. Their rallies in December helped them to a better return since Thanksgiving than the S&P 500. Can they run up to new highs and join their big brother? And can the S&P 500 build on new highs? 

WoW

Our Plus and Minus table on the Wall of Worry tilts decisively toward Minus in the short-term. Breadth is the “heartbeat” of a market. Usually the Advance/Decline line hits new highs along with the index. Not so last week. We expect to see the percentage of stocks above their moving averages rising. Nope, at best they are flat. How about the options market? Enthusiastic Call buyers should be outnumbering Put hedgers. Not so; the CBOE Put/Call ratio is rising off recent lows. If risk is coming out of markets, then we would look for Consumer Staples to perform better than Discretionary stocks. Sure enough, over the past two weeks the Staples sector has outperformed Discretionary.

Season it

To add a bit more cheer to the foregoing, how about a look at the calendar? Blowing the dust off our handy Stock Trader’s Almanac, we find that since 1950, March in a post-election year ranks middle of the pack in performance. The average return for the big indices is a small gain of 0.5 to 0.9%. NASDAQ is the outlier, averaging a loss of 0.1%, dragged down by March 1980’s drop of 17.1%.

March also means quarter-end, so stock index options, index futures, stock options and stock futures all expire on Friday, 21. Folks are also gearing up to pay taxes. March will also have a Fed meeting on the 18th and 19th. This meeting releases a quarterly update from the Fed staff of economic projections.

Minor stuff

Some of last Friday’s stock selloff can be attributed to recent economic news. Walmart guiding lower for 2025 did not help the market’s tone, despite WMT being a member of the Staples sector. Retail sales overall fell 1% in January, along with consumer confidence. Manufacturing production also slipped during the month. One data point does not change a trend, although sometimes one can look back and see an inflection.

We would wait a couple of months and see if our intermediate dashboard starts to move. The January data is very likely skewed downward thanks to some tough weather conditions. That was likely the case for the drop in the Dallas Manufacturing survey. Output and hours worked were down from the prior month. Outlook for the next several months and new orders were stable, however. We would note businesses are concerned about coming tariffs and are already seeing public sector projects being put on hold.

This week’s economic news is mostly second-tier data: durable goods orders, S&P home prices and new home sales. The second estimate of 2024’s fourth quarter GDP should stay at 2.3%. Halfway through the first quarter, GDP estimates are running near the same pace, from 2.3% to 2.9% (New York Fed). Next week the fun starts all over again, with ISM surveys, ADP and BLS job reports and unemployment. NVIDIA is the heavyweight among the 86 S&P 500 names. It reports on Wednesday. Back on the Discretionary sector bandwagon, Home Depot and Lowes report Tuesday and Wednesday, respectively.