Introduction

Earnings, data and Trump support the market as traders shrug off a host of geopolitical concerns. Today's action reconfirms the theory that earnings drive the market, everything else is noise. While still early in the season the signs are good that yes, 1st quarter earnings growth and forward outlook are as expected, maybe a little better. During the day a triple shot of good news from the Trump administration helped lift indices to the highs of the day. Trump himself gave the steel industry a boost during a speech at a rally, the GOP apparently has a new(er) plan for health care reform and Steve Mnuchin says we're really close to getting tax reform done, hopefully before the end of the year.

International markets were basically flat following yesterday's action, attention firmly focused on the rapidly unfolding earnings season. Asian indices were mixed, the Nikkei falling -0.01% while most others in the region were able to post small gains. European indices were more firmly positive but only in the sense that no losses were present, the average gain close to 0.10%.

Market Statistics

Early futures trading indicated a positive open all morning, about 0.25% for the SPX, with some strength shown following the 8:30AM release of data. Going into the open indications fell back a bit but remained positive. The SPX opened with a gain of about 4 points and spent the first half hour or so testing support before moving up from there. By 12:30 the indices were up more than 0.75%, led by the transports, and looking like they would go higher. Early afternoon comments from the Trump Administration sent the indices up to the highs of the day where they remained until just before the close. A small pullback going into the close left them near the high of the day at the end of trading.

Economic Calendar

The Economy

Today's data was a bit mixed in terms of expectations but 100% positive for the economy. Starting with initial claims, claims fell -10,000 to hit 244,000, slightly less than expected. Last week's data was not revised. The four week moving average of claims fell -4,250 to hit 243,000. On a not adjusted basis claims fell -5.4% versus an expected -9.4% and remain down on a year over year basis. Year over year not adjusted claims are down -6.5%, trending near 43 year lows and consistent with ongoing labor market health.


Continuing claims fell -49,000 to 1.979 million, the lowest level since April, 15th 2000. The 4 week moving average of claims fell to 2.023, also a new 17 year low. Last week's data was not revised. The new low suggests that long-term labor market trends are intact and that further improvement can be expected. As an individual indicator it represents the number of employees who lose a job and don't find a new one within 2 weeks. Declining and low levels of continuing claims indicates those who find themselves out of work are finding new work quickly and is a sign of robust labor market activity.

The total number of jobless claims fell -84,354 to 2.177 million. This decline is as expected and consistent with seasonal and long-term labor market trends, down -6.35% year over year. Based on the historical data and trends we can expect to see this figure continue to drop into the spring and late summer, hitting seasonal and long-term lows in the process.


The Philadelphia Federal Reserve Manufacturing Business Outlook Survey declined nearly -11 points this month but remains firmly expansionary at 22. This is the 9th month of positive reading, the only negatives being declines in the level of expansion in new orders and shipments. Other readings within the report suggest that unfilled orders and delivery times are on the rise, as is employment. The employment index gained 2 points to hit 20, the 5th month of positive reading and the highest level since 2011, while the future employment index held steady at the all-time high.


The Index of Leading Indicators was released at 10AM and came in a bit above expectations. The March read on Leading Indicators is +0.4%, a tenth better than expected and the 4th consecutive positive reading. According to Conference Board economists it indicates continued expansion into the end of the year, with the possibility of acceleration later in the year. The Coincident Index advanced 0.2%, the Lagging Index was unchanged.


The Dollar Index

The Dollar Index was mixed today, opening with a small gain, falling to a three week low and then bouncing back to close near the open. Today's action created a small doji candle just above support at the 38.2% retracement level. Support is just above $99.50, near the bottom of the 5 month trading range, and may be tested again. The indicators are consistent with a test of support within a trading range and rapidly reaching oversold conditions. A break below support would be bearish, a bounce bullish.

Geopolitical tensions, flight-to-safety, French elections and economic outlook have the index winding up with the next FOMC meeting as the likely focal point. The next meeting is May 3rd, only 2 weeks away, and the same week as monthly labor data. The Fed Watch Tool indicates only a 4% chance of hike at this meeting.


The Gold Index

Gold prices held steady in today's action but are down from the high set earlier this week. Prices are inflated on geopolitical driven flight-to-safety that has moderated in the past few days. Spot price is now hovering around the $1,280 level with the possibility of moving down to $1,250 should fears evaporate. That being said, tension is still in the air and could easily drive prices back to retest recent highs. The underlying fundamentals remain bullish, the FOMC is on track to raise rates again this year. The next meeting may not see a hike but it is likely to provide new information to sway outlook.

The Gold Miners ETF GDX held steady after yesterday's fall, sitting just above the short and long-ter moving averages. The ETF remains constrained within a short-term trading range, a range that appears to be getting narrower as we approach the next FOMC meeting. The indicators are consistent with a move lower within a trading range with downside target near $22.00. The caveat is that the geopolitical situation could send gold prices back to retest their highs, which would likely lead this ETF back to retest recent highs as well.


The Oil Index

Oil prices were steady today following their Wednesday decline. WTI fell about -0.25% at the close of trading after wavering around break-even most of the day. Prices are down on over-supply concerns that are driven by rising US production and storage. The OPEC production cut did little to alter the underlying fundamental picture, supply outweighs demand, and talk of an extension is having little effect on prices now. Looking forward I expect further volatility with the possibility of falling below $50.

The Oil Index has fallen to reconfirm support at 1,150. This is consistent with the upper end of the 8 month trading range of 2016 and pre-OPEC production cut levels. The indicators are consistent with support at this level, diverging from the newly set 5 month low. Forward outlook for the sector remains favorable with strong triple digit earnings growth all year so I am bullish for the short to long-term.


In The News, Story Stocks and Earnings

Lots of earnings both before the open and after the close of trading. Before the open Verizon grabbed everyone's attention with a miss on the top and bottom lines. The sector was already expected to be one of the worst performers of the season with tepid forward outlook so news that post-paid subscriptions declined was not taken well. Forward guidance was also weak, roughly in-line with previous, and did not support share prices. Shares fell nearly -3% in the pre-market session to trade at a 3 month low.


Rail carrier CSX reported before the open as well, beating on the top and bottom line. YOY revenues grew nearly 10% on a surge in coal shipments, no doubt thanks to President Trump. The company also reported pricing strength which helped drive results. Sales grew in all segments save one, forest products, with intermodal shipping coming in at 1%. In addition, the company reports it is making efforts to realize cost benefits across its operations under new CEO Hunter Harrison. The news was well received, driving share prices up more than 5% to trade at a new all time high.


American Express reported after the bell yesterday but was no less important to today's trading. The charge card company reported better than expected top and bottom line results driven by a surge in member spending. The news is a sign of increase consumer spending and a positive for AXP, the financial sector and the economy as a whole. Shares of the stock gained at least 2.5% in after-hours trading yesterday and extended those gains to 6.5% in today's action.


Home builder DR Horton reported better than expected top and bottom line results, raised full year guidance and yet the stock fell nearly -3% on the news. The results, while better than consensus, did not blow the market away. Share prices are up more than 22% on expected strength in the sector so this turned out to be a sell-the-news event. Forward outlook remains positive with expected revenue growth in excess of 1.5%.


Visa reported after the closing bell, beating on the top and bottom lines as transactions increase YOY. Shares of the stock jumped 3%.

Mattel reported after the bell and missed on the top and bottom lines. Shares fell more than 6%.

The Indices

The indices got off to a slow start but once the move up began it kept on going with barely a pause. The day's leader is the Dow Jones Transportation Index with a gain near 1.65%. The transports created a medium bodied white candle, moving up and breaking through the short-term moving average, with an eye on testing the 9,250 level. The indicators are mixed but generally consistent with a bullish swing in momentum within a trading range. A break above 9,250 would be bullish with upside target at the all-time high.


The NASDAQ Composite was a distant second with a gain near 0.91%. The tech heavy index created a medium sized white bodied candle and set a new all-time closing high. Price action is not strong but suggests a continuation of near, short and long-term trends. The indicators are still a bit mixed but rolling into a trend following entry signal soon to be confirmed by momentum. Upside target is 6,000 in the near term, 6,200 in the short to long.


The Dow Jones Industrial Average is a close third with a gain of 0.85%. The blue chips created a medium sized white bodied candle that came up to but did not break above the short-term moving average. The index appears to be bottoming along near-term support levels but has yet to definitively move up from said level. The indicators are consistent with support at current levels but have not indicated strength or even upside movement yet. A break below 20,500 would be bearish in the near-term, a continuation of today's bounce trend-following with upside target near 20,900.


The SPX is today's laggard with a gain of only 0.75%. The broad market created a medium size white bodied candle that broke above the short-term moving average but not above an important long-term up trend line. The indicators are consistent with support at current levels but do not indicate strength, or confirm reversal of near-term sideways/down action. A break above 2,360 would be bullish and trend following. A failure to move higher would be bearish in the near to short-term.


The market certainly moved higher today, and looks like it could go further, but some of the euphoria may be misplace. At least some of today's action was driven by the Trump administration and their support of key agenda items. The problem with that is we've heard the talk before, I'd hate to put too much more faith in any rally it inspires before we see a little action. Other than that the fundamentals remains good for bull market. The economy is expanding, labor markets are tightening and earnings growth is at hand. I remain bullish in the short and long-term, a little more cautious in the near. Tomorrow there is one key economic report, Existing Home Sales, and a handful of earnings reports.

Until then, remember the trend!

Thomas Hughes