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Investing Insights: Weathering The Numbers Storm

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We saw some pretty ugly numbers from the government and in select earnings reports last week. What did they all have in common? Blame it on the weather.  In fact, it’s apparently so effective an excuse that the next time my wife is mad at me for something, that’s my go-to: Can’t help it. It was the weather.

The weather story isn’t going away just yet. It’s a relatively light earnings week but a busy few days for the retail sector. Results are due from Home Depot (HD), Macy’s (M), Office Depot (ODP), Abercrombie & Fitch (ANF), Lowe’s (LOW), Target (TGT), Best Buy (BBY), Sears Holdings (SHLD), Gap (GPS), and JC Penney (JCP). Just to name a few! The impact of severe cold and snow (or, these stores’ hope for a springtime bounce) may turn up in the results and in retail execs’ guidance and forward-looking statements. Importantly, any intelligence on consumer sentiment and spending independent of seasonal impact could just be the catalyst that a slow-moving market needs.

Next for VIX?

For now, it looks like the weather excuse provided some cover to sell volatility, but the next breakout for the CBOE Volatility Index (VIX), the market’s “fear gauge,” is less clear.

VIX is back down to the mid-teens compared to the early-February mark above 21 (see figure 1). The lower figure reflects the relative calm that returned as anxiety about emerging markets subsided and as the Federal Reserve signaled it will reduce its monthly stimulus at a measured pace in 2014. Traders seem to have found solace in the fact that the next few months of monetary policy is now largely sketched out. But worth noting, VIX did creep up last week from where it stood the previous Friday---an unexpected week-over-week advance during a positive run for the S&P 500. Is that a VIX primed for another spike?

 

Figure 1: The CBOE Volatility Index (VIX) returns to the mid-teens after emerging-market worries triggered another VIX spike in early 2014. Data source: CBOE. For illustrative purposes only. Past performance does not guarantee future results.

 

All Over the Heat Map

Corporate profits are another reason for the mixed action but overarching positive tone. According to S&P Capital IQ, companies overall reported record earnings growth of 8% so far in the latest round of quarterly results.  With help from earnings, the S&P 500 has now erased most of January’s losses and is once again approaching the record levels seen at the start of the year.

A closer look at individual stock performance reveals a sector patchwork. The one-month Heat Map from TD Ameritrade’s Trade Architect confirms an even mix of winners and losers despite the broader market’s seesaw action over the past month (see figure 2). Importantly for bulls, green glows in areas that reflect expectations for continued economic growth, namely technology and consumer.

Figure 2: One-month TD Ameritrade Heat Map as of February 21. Financials and industrials suffered the most, while health care, technology, and consumer services were among the bright spots. The bigger the box, the bigger the company. Source: TD Ameritrade/Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Growth Revision

Outside of the retail sector, JPMorgan (JPM) might garner some interest as the banking giant hosts an annual investor meeting early in the week.

A revised U.S. GDP report, out on Friday, could show how much all the grumbling about bad weather seeped into this broad economic indicator (see figure 3 for the full schedule of releases).

Overall, the news flow might be a bit light in the week ahead and the trend of mixed trading might continue absent a new catalyst to shake the market from its current mindset. The prospects of warmer weather (one of these days) might also add some cheer as the calendar mercifully flips to March.

Good trading,

JJ

@TDAJJKinahan

  Figure 3: Weekly U.S. economic report calendar. Source: Briefing.com.

 

TD Ameritrade, Inc., member FINRA/SIPC/NFA. Commentary provided for educational purposes only. Past performance is no guarantee of future results or investment success.

Supporting documentation for any claims, comparison, statistics, or other technical data will be supplied upon request.