April 1. Watch yourself—it would be foolish to ignore the volatility as money continues to be reallocated, so far from biotech and other popular momentum stocks, to start Q2.
As temperatures rise, concerns about the impact of this winter’s cold weather should melt. With that in mind, investors will scrutinize Friday’s jobs data for a sense of economic momentum for the remainder of 2014.
Recall that extreme winter weather took some of the blame for December and January’s poor numbers. The Polar Vortex theory didn’t seem to pan out in February, however, as the economy added a better-than-expected 175,000 jobs. March numbers might actually benefit from pent-up demand (some industry economists’ surveys put the consensus payrolls gain at 200,000). If the stock market is to go higher, this is the payrolls trend we want to see.
Plenty to Chew On
Other events to note include March automaker sales and a closely tracked manufacturing index from the Institute for Supply Management (see the full economic calendar below in figure 3). Global services (non-manufacturing) data and the European Central Bank (ECB) rate announcement could impact global financial markets Thursday. China’s recent run of disappointing economic news has not gone unnoticed. Plus, the Ukraine issue may have been shoved from the top of financial headlines but it’s far from over. News reports today reveal U.S. Secretary of State John Kerry and Russian Foreign Minister Sergey Lavrov are far apart on how to de-escalate the crisis in Ukraine as Russia continues to move troops along its border.
Economic data will dominate as earnings take a backseat unless companies begin firing warning flares about Q1 results. Monsanto (MON), CarMax (KMX), and Micron Tech (MU) are among the few names coming out with results in the days ahead. Alcoa (AA) kicks off the next reporting round in a week, on April 8, but the floodgates don’t open until the middle of the month.
NASDAQ Lags
Let’s take a look at the performance of the NASDAQ 100 Index relative to the broader market. From March 20 to March 27—just over a week—the index, which holds the largest 100 non-financial names from the NASDAQ Stock Market, shed 3.6%. During that same time, the S&P 500 lost a more modest 1.2%. Early-year momentum names like Netflix (NFLX), Tesla Motors (TSLA), and much of the biotech sector (NBI) suffered outsized losses and weighed heavily on the NASDAQ.
Sentiment was certainly shifting, sending the CBOE NASDAQ 100 Volatility Index (VXN), a barometer of market sentiment much like the CBOE Volatility Index (VIX), on the move. Sometimes called “VIXen,” the index uses the same methodology as the more widely watched VIX “fear gauge” but tracks the implied volatility of options on the NASDAQ 100 Index. While VIX was trading back below 14 late last week, VXN was hovering up around 17.5 (see figures 1 and 2).
The relative weakness in the NASDAQ 100 Index (and strength in VXN) reflects a modest shift in investor sentiment that seemed to pull down the broader market in the second half of March.
Is this a short-lived joke on the bulls or a sign of a momentum shift to start a new quarter?
Good trading,
JJ
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