US STRATEGY - Quadruple Witching

Yesterday the S&P 500 finished flat on the day, while volume declined 9.5% day-over-day and the breadth was down -1690 to -472. Looking at yesterday’s MACRO data points, the market was able to shrug off bad news and focus on the good. 

  • Jobless claims for the week ending March 13th were 457,000 vs. consensus 455,000 and prior week unrevised 462,000; the 4-week moving average was 471,300 down 4,300 from prior week. 
  • February CPI 0.0% vs. consensus +0.1% and January unrevised +0.2%; ex-Food & Energy +0.1% vs. consensus +0.1% and January unrevised (0.1%).
  • Q4 current account balance was ($115.6B) vs. consensus ($119.0B) and Q3 revised to ($102.3B) from ($108.0B).
  • February leading indicators came in at +0.1% vs. consensus +0.1% and January unrevised +0.3%.
  • March Philadelphia Fed was 18.9 vs. consensus 18.0 and February 17.6.

While we continue to believe that the CPI and PPI numbers are inflationary, the March numbers will tell a different story from February.  A short-lived dip in February energy prices has been followed by higher prices in March, thus the CPI and PPI should show fairly strong gains when the March data is reported, as compared to February’s “contained” inflation reading. 

Yesterday, Healthcare (XLV) was the best performing sector in the market next to Industrials (XLI), as we sold our LONG position in the XLV.   We bought Healthcare (XLV) and the fear of unknown legislation and now we sold into strength.  The HMOs were a clear standout in the group, with the HMO index up 3.1% on the day.  

The Dollar index was up 0.74% on the day; the third best daily performance of the year. The strength in the dollar knocked down the REFLATION trade and related sectors.  Yesterday the three worst performing sectors were Energy (XLE), Materials (XLB) and Financials (XLF).   

Along with the XLV the markets were able to find support in the Industrials (XLI).  Air Freight and logistics names found some support from FDX +3.2%, as its earnings and guidance provided a sign of further strength in the economy.  Along with FDX, UPS and BA were the three best performing stocks in the XLI. 

Volatility (VIX) declined 1.7% yesterday and is now down 5 of the last six days.  The VIX continues to be broken on all three durations - TRADE, TREND and TAIL. 

Yesterday, Technology (XLK) was the 3rd best performing sector despite the SOX declining 0.7% on the day. 

As we wake up today, Equity futures are trading flat. As we look at today’s set up the range for the S&P 500 is 19 points or 1.3% (1,151) downside and 0.3% (1,170) upside.

In early trading, equity futures are trading marginally above fair value, continuing the recent rally ahead of today's "quadruple witching" and as Greece related noise continues to linger.  The US MACRO calendar is void of any significant events. 

In early trading, copper is trading higher on no real news flow, Gold is trading lower, and Oil is trading slightly lower for the second day in a row. 

Howard Penney

Managing Director