Key Takeaways
Stocks Gave Up Friday’s Gains, Closing Lower For the Week
Gold And Bonds Continue To Rally
Bitcoin Over $72 Thousand
After starting the day higher, stocks reversed course to close lower on Friday. The S&P 500 fell 0.65% on the day and 0.3% for the week. The Nasdaq Composite fell 1.16% Friday and lost 1.2% for the week. Despite the losses, both indices are up over 7% on the year.
Friday’s job number came in stronger than expected, further demonstrating the strength of the economy while at the same time, all but eliminating the chances of an interest rate cut before the summer. This week, we’ll get more economic data with the Consumer Price Index (CPI) and Producer Price Index (PPI) both due out, along with the latest Retail Sales number. CPI will kick the week off tomorrow. Forecasts call for CoreCORE
CPI to be up 0.3% month-over-month and 3.7% year-over-year.
In addition to the economic data this week, we still have a few companies reporting earnings. After the close today, OracleORCL
reports. Then later this week we’ll hear from Dicks Sporting Goods, Dollar GeneralDG
and Dollar TreeDLTR
. As we near the tail end of earnings season, we’re on pace for first quarter earnings growth of 3.4%, which is down from forecasts of 5.6% in December. Consensus forecasts call for full year earnings growth of 11% after just 2% in 2023 according to FactSet.
The growth rate forecasts are something I’m watching closely. As things currently stand, the market is trading at 21 times forward looking earnings. That’s above the five-year average of 19 and ten-year average of 17.7. In other words, on a fundamental basis, stocks are overvalued relative to historical averages. If we see downward revisions or earnings misses, it could lead to a market correction and reversion toward historical valuation averages.
There are some other signs this market may be overextended which I mentioned last week. We’re continuing to see gold and bonds rally. Gold rallied 5% last week and is up 9% since February 14, while the yield on ten-year notes is down below 4.8%. Both bonds and gold are often considered safe haven investments and the rotation of money into those products has been noticeable. In addition, market volatility has begun creeping higher. The VIX is up over 7% premarket to 15.80. While that is still relatively low on a historical basis, the recent move higher, combined with the rally in gold and bonds, may be signaling caution.
One asset that continues to move higher is bitcoin. In premarket, bitcoin is over $72 thousand. That is causing ancillary related stocks to rally as well. Coinbase is up just under 7% premarket. MicroStrategyMSTR
is indicated higher by around 9% and Robinhood looks set to open higher as well.
Heading into the week, I’ll be keeping my eye on the triad of golds, bonds and volatility. No one wants to be the first to the party when it comes to calling a market high. However, there are certainly some indications the rally is running out of steam. As always, I would stick with your investing plans and long-term objectives.
tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.
