Stocks End Shortened Holiday Week Lower

Stocks and other risk assets were relatively quiet on Thursday as the world waited for Friday’s payrolls report to be released and digested the latest no QE3 decline.Technically, it is very encouraging to see U.S. equity markets continue to outperform their peers on a relative basis. For most of the week, other risk assets (overseas stock markets, currencies, commodities, etc) were down big while the major U.S. averages barely budged and continue trading in a relatively tight and constructive pattern. The benchmark S&P 500 continues to build its latest base and find support above 1390. The next level of support is its 50 DMA line near 1370.

Monday & Tuesday’s Action: No QE3, Stocks Fall

On Monday, buyers showed up and bid a slew of risk assets higher on the first trading day of the second quarter. The latest round of economic data was mixed from across the globe. The official Chinese manufacturing data topped estimates but the HSBC manufacturing survey missed. U.S. mfg data also topped estimates which bodes well for the ongoing economic recovery. The ISM said its mfg index rose to 53.4 in March. However, not all the news was bullish. The Commerce Department said construction spending slid -1.1% in February which was the largest decline in 7-months and missed the Street’s estimate for a gain of +0.6%. The big miss came from Europe. The euro zone’s manufacturing sector fell for an eight month and at a faster pace in March which bodes poorly for the EU economy.  It was also worrisome to see that the euro-zone’s unemployment rate vaulted to its highest level in almost 15 years! The fact that stocks rallied on the news bodes well for this rally and illustrates that the bulls are clearly in control at this point.

On Tuesday, markets across the world fell after the Fed released the minutes their latest meeting. The minutes largely reiterated the Fed’s recent stance and did not mention Q3. The minutes largely reiterated Bernanke’s latest cautious, but optimistic, stance regarding the ongoing economic recovery and the fact that they did not mention QE3 sent risk assets lower immediately after the minutes were released. News from the economic front was quiet. Auto sales rose last month which was a net positive, even though gasoline prices are at record highs for this time of year. The Commerce Department said factory orders rose +1.3% in February but missed the +1.5% forecast.

Wednesday-Friday’s Action: EU Debt and Recession Woes Hurt Stocks

Markets across the globe were smacked on Wednesday after investors digested a slew of economic data and the ECB held rates steady at 1%. Japan’s Nikkei experienced its largest single day decline in 5-months and gold fell by over 50pts. The European Central Bank (ECB) held rates steady and did not allude to further easing which echoed the Fed’s minutes released on Tuesday. Elsewhere, investors were also concerned that Spain’s debt auction was a little shy of estimates. Spain sold 2.6 billion euros of government bonds which was near the lower end of its target rate and yields rose compared to prior levels. This sparked fresh concern regarding other EU country’s and their debt woes. The news in the U.S. barely missed estimates. ADP, the country’s largest private payrolls report, said U.S. employers added 209,000 new jobs last month which was just shy of the Street’s 217,000 estimate. Separately, the ISM service index came in at 56 which was just below the Street’s estimate of 57. Stocks were relatively quiet on Thursday after the Labor Department said weekly jobless claims fell by 6,000 to a seasonally adjusted 357,000. The report beat the Street’s estimate for a gain of 1,000. A separate report showed that March retail sales in the U.S. beat estimates thanks to the stronger-than-expected weather we have seen in recent weeks across much of the country. The stock market will be closed on Friday in observance of Good Friday and the holiday weekend. But the Labor Department is slated to released March’s jobs report at 8:30am EST.

Market Outlook- Confirmed Rally