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Due for a Breather, but not for CPR
The trend in the stock market, which can be both friend and foe to investors, remained a friend Wednesday as the S&P 500 closed at its highest level in nearly 18 months.
The financial sector, which tangled with a Citigroup downgrade, still managed a 1.1% gain and continued its outperformance streak amid a lot of talk about tougher financial regulations. The sector, up 10.3% year-to-date, trails only the industrials sector, which is up 10.6%, on the top-performers list.
With the S&P 500 now up 11.7% from its intraday low on Feb. 5, it is no surprise that we are hearing increased chatter about the market being due for a period of consolidation.
That is a defensible position, especially since the complacency factor is very much in play again given that the S&P 500 has risen in 13 of the last 16 trading sessions. The Volatility Index (VIX), which is euphemistically referred to as the "fear gauge," is at its lowest level since May 2008.
The market is due for a breather, but looking at the latest Investor Sentiment survey from the American Association of Individual Investors, reveals some supportive information in that the number of respondents with a bearish outlook rose while the number of respondents with a bullish outlook fell.
Specifically, bearish sentiment moved up to 29.9% from 25.3% while bullish sentiment dropped from 45.3% to 35.4%.
With sentiment being a contrarian indicator, these are directional moves that support the notion that a near-term period of consolidation isn't likely to soon morph into an actual correction, barring some exogenous shock.
On that note, there was nothing shocking in this morning's economic data, most of which came in close to expectations.
The Consumer Price Index for February was unchanged (consensus +0.1%) while core CPI, which excludes food and energy, rose 0.1% (consensus +0.1%). Year-over-year total CPI is up 2.1% versus 2.6% in January. Core CPI is up just 1.3% versus 1.6% in January.
Inflation indicators are subdued at the consumer level, which is certainly lending to the Fed's patience in keeping the fed funds rate at the zero bound.
Similarly, the labor market isn't lighting a fire under the Fed either even if it has stabilized some.
Initial claims for the week ending March 13 slipped 5,000 to 457,000 (consensus 455,000). That is the lowest level of claims in five weeks, but is still at a starkly elevated level that doesn't suggest a lot of full-time hiring is happening.
To the latter point, continuing claims for the week ending March 6 increased 12,000 to 4.579 mln (consensus 4.522 mln). On a non-seasonally adjusted basis, continuing claims dropped by 57,819 for the week ending Feb. 27, yet the number filing for emergency unemployment compensation increased by 360,123 to 5.888 mln.
The Q4 current account balance was -$115.6 bln (consensus -$119.0 bln). Given its dated nature this report will take a backseat to the other data, which will also include Leading Indicators for February (consensus +0.1%; prior +0.3%) and the Philadelphia Fed Index for March (consensus 18.0; prior 17.6) at 10:00 a.m. ET.
The S&P futures are little changed at the moment, so the prevailing expectation is that the cash market will start today's trading on a flattish note.
Feeds!