Wednesday March 25: Equities Fall on Weak Data

Stocks continue to fall after more weak U.S. economic data. The S&P falls 1.5% 5o 2,061 and the Dow loses 1.6% to 17,718. Stocks are currently flat for the year, and haven’t increased for two consecutive trading days since February 17th. Stocks with the highest valuations such as biotech and semiconductor companies fall the most today. The S&P currently trades at 18.36x earnings compared with the five year average of 15.64. 1Q earnings reported next month are expected to decline for the first time since 2009, with the S&P earnings expected to see a 5.6% contraction. Along with a downward revision to last month, orders for durable goods unexpectedly fell 1.4% in February against an expected .2% increase, reflecting that a slowdown in global growth may be hurting American manufacturers. As a result, Treasury yields rise to 1.92% and .59% for the 10 and 2 year bonds. The euro, since reacing a low of $1.0456 nine days ago appreciated slightly to $1.0971 after news of stronger German business optimism. The dollar index falls slightly, while gold and oil both rise.

Demand for U.S. Treasuries falls at today’s auction of 5 year notes. With yields at their currently low level and the Fed cutting estimates for rate hikes and economic growth, investors don’t have as much demand as earlier in the year. The bid-to-cover on the issuance was 2.35, less than the average 2.63 over the last 10 auctions. Bond yields have been volatile this year, with the 10 year Treasury currently below 2% after reaching 2.26% earlier this month, after hitting a low of 1.64% in January. An investment officer at Guggenheim Partners belives that with economic momentum temporarily slowing, and international money coming to the U.S. it’s very possible that U.S. yields continue to move lower in the near term. Analysts at BoAML say that a drop below 1.75% in the 10 year yield would warrant a renewed Greek crisis or a severe correction in equities.

Oil traders buy call options that U.S. crude will reach $100 by the end of 2018. The demand in these particular futures has reached the equivalent of 2.7 million barrels of oil, which is a significant increase from the beginning of March. This comes at a time when short positions in WTI are at a record high as many investors are bearish on the commodity. As a result, these particular call options cost investors only $2.36 and have three years to reach the strike price. Oil finishes slightly higher on the day at $47.49 and $55.45 for May contracts in WTI and Brent crude oil.

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Wednesday March 25: Equities Fall on Weak Data

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