The first quarter of 2014 is essentially over. Monday marks the last day of the quarter but fund managers have already made their end of quarter moves. Instead of window dressing it felt more like undressing and moving money out of small caps and tech names and into big cap industrials.

The biotech stocks continue to crash with another -6.6% plunge last week. Social media names were also hammered lower. Facebook's founder, 29-year old Mark Zuckerberg, lost $3.1 billion last week thanks to FB's $7 drop to the $60 level. The small caps underperformed with a -3.5% drop for the week. The NASDAQ's -2.8% decline marks its worst week in 17 months.

World leaders were meeting in the Dutch city of Hague for G7 meetings while Russia massed more troops on the eastern border of Ukraine. In the states the Federal Reserve said 29 of the 30 largest financial institutions passed their latest stress tests and 25 of 30 received approval to return capital to shareholders. Meanwhile emerging market stocks caught a bid and the EEM emerging market ETF appeared to break through some resistance.

chart of the Emerging Market ETF (EEM):


Economic Data

U.S. economic data remains uneven. The Richmond fed survey slipped from -6 in February to a -7 in March. Numbers under zero suggest economic contraction. The manufacturing PMI reading fell from 57.1 to 55.5. That was worse than expected but still above 50.0, indicating growth. The durable goods orders rose +2.2% in February after a -1.3% drop in January. February's reading was better than expected.

The pace of new home sales fell -3.3% in February to an annual pace of 440,000. That's down from January's 455K pace but better than many analysts were expecting. Pending home sales in February came in worse than expected at -0.8%. That's the eighth monthly decline in a row. The Case-Shiller 20-city home price index came in at +13.2% in January, down slightly from December's 13.4% reading.

Personal income rose +0.3% in February. The final reading for March's University of Michigan consumer sentiment survey was revised higher from 79.9 to 80.00 but still at four-month lows. The third estimate on U.S. Q4 GDP growth was revised from +2.4% to +2.6% growth.

Overseas Data

Eurozone manufacturing PMI slipped from 53.2 to 53.00. Numbers above 50.0 suggest growth. Consumer confidence for the Eurozone reversed from -12.7 to -9.0, which was better than expected but still negative. Stocks in Europe got a boost early on as Jens Weidmann, the president of Deutsche Bundesbank, suggested that the ECB might consider a QE-style program to fight deflation in Europe. This ignited speculation about if and when the ECB might elect to use a quantitative easing stimulus program. Suddenly analysts were suggesting it could be announced at the ECB's next meeting on April 3rd. Meanwhile the Moody's credit rating agency put Russia on review for a potential downgrade.

Economic data in Asia was mixed. Japan said unemployment ticked down from 3.7% to 3.6% and that retail sales improved +3.6%. Yet household spending was down -2.5% year over year, significantly worse than expected. The HSBC Chinese flash PMI came in worse than expected with a drop from 48.5 to 48.1. This is a new eight-month low and numbers below 50.0 indicate economic contraction. This fueled fears that the Chinese economy is slowing down too fast. Investors took comfort in reassurances from the Chinese premier, Li Keqiang, who said the government will proceed with new infrastructure projects to boost the economy.




Major Indices:

The S&P 500 index came close to retesting support near 1840 with Thursday's intraday decline. The big cap index lost -0.48% for the week but is still up +0.5% year to date. It is less than two percent from its all-time highs.

The S&P 500 has essentially churned sideways in the 1840-1885 zone for the month of March. A breakdown under support at 1840 probably leads the index to 1800. If the index can rally from here than a breakout past resistance at 1885 likely signals a run to round-number resistance at the 1900 mark.

chart of the S&P 500 index:

It has not been a great month for the NASDAQ composite with a nearly 5% drop from its early March highs. This past week saw a breakdown below support near 4200 and its 50-dma. The NASDAQ is now -0.5% for the year. The index is testing technical support at its rising 100-dma. If this support fails we could see the NASDAQ fall toward round-number support near 4,000.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index was the worst performer among the major indices with a -3.5% plunge and a breakdown below its 50-dma. It too found support near its 100-dma but the recent sell-off has pushed the index to a -1.0% decline for the year.

You can see on the weekly chart below that the rally has failed at a long-term trend line of higher highs. The $RUT is also on the verge of breaking down below the bottom of its long-term bullish channel.

The 1120 and 1100 levels might offer some support but further weakness could fuel a sell-off toward the February lows.

chart of the Russell 2000 index

Weekly chart of the Russell 2000 index



Economic Data & Event Calendar

It's the first week of a new month and that means lots of economic data. Analysts are hoping for the U.S. manufacturing ISM numbers to rise now that winter is on the way out. The big report for the week will be Friday's jobs report. If the jobs number is too low the market could blame it on the weather again. If it's too hot then investors will worry that the Fed will tighten rates too soon. Estimates are for +185,000 new jobs in March.

Q1 earnings season will start soon on April 8th.

Economic and Event Calendar

- Monday, March 31 -
Federal Reserve Chairman Janet Yellen speaks
China's manufacturing PMI

- Tuesday, April 01 -
Construction spending data
ISM manufacturing data
monthly vehicle sales

- Wednesday, April 02 -
ADP Employment Change Index
U.S. factory orders

- Thursday, April 03 -
Weekly Initial Jobless Claims
ECB interest rate decision
ECB President Mario Draghi's press conference
ISM services index

- Friday, April 04 -
U.S. non-farm payrolls (jobs) report
U.S. unemployment rate

Additional Events to be aware of:

April 18th - U.S. markets closed
April 30th - FOMC interest rate decision and outlook


Looking Ahead:

Last week's market weakness could have been due to the upcoming April 15th tax deadline. Investors could have been selling stocks to raise capital to pay their taxes. Whatever the reason behind the weakness investors have turned more cautious. The latest American Association of Individual Investors (AAII) survey saw bullish sentiment drop from 36.8% to 31.2%. What is interesting is that these previously bullish investors are not turning bearish. They're merely turning neutral. Bearish sentiment was only up 1.8% to 28.6%.

Business Insider had an interesting article on Seth Klarman. He is considered one of the most successful investors in history. The article suggested that investors should be more cautious on the market because Klarman is. He has reportedly "returned $4 billion of capital to his clients. He also has 40% of his portfolio in cash. Why? Because Klarman can't find anything he is comfortable investing his money in."

Meanwhile the Stock Trader's Almanac says that seasonally April is a bullish time of the year for stocks. Over the last forty years it has been the fourth best month for the NADAQ. Since 1950 it has been the second best month of the year for the S&P 500 index. The almanac does note that midterm-election years tend to be less bullish for the market. We are also just one month away from "Sell in May and Go Away" phenomenon. May starts the worst six months of the year for stocks.

The U.S. market is long overdue for a correction so it's hard to be super bullish on the market. Yet the long-term trend is still higher. Short-term the Russell 2000 and the NASDAQ could drag the rest of the market lower. We are about two weeks away from Q1 earnings season. It would not be surprising to see the market consolidate sideways until earnings season begins.

If Europe and China do announce new stimulus programs they should be bullish for equities. Meanwhile if Russia does something stupid like move across the Ukraine border it could rattle the markets.

On a different note I encourage everyone to be thankful for what we have. The 2014 Retirement Confidence Survey by the Employee Benefit Research Institute uncovered some very sobering numbers. 36% of American workers have less than $1,000 in savings. That's up from 28% in 2013.

James