The March nonfarm payroll report on Friday, April 3rd, was a complete disaster. Job growth was tens of thousands below estimates and less than half of February's report. Yet the disappointing data failed to send stocks lower. Quite the opposite. Investors continue to believe that bad news is good news because it will keep the fed on the sidelines and postpone their imminent rate hike.

Investors bought the dip on Monday morning and stocks produced a widespread rally last week. The S&P 500 is up five out of the last six trading days. Technology stocks are back to leading the market higher. The semiconductor index rallied +2.8% for the week. Biotechs surged almost +4%. Merger and acquisition news tends to generate bullish sentiment in the market. Last week there were two big deals announced. FedEx (FDX) said they will spent $4.8 billion to buy a smaller European rival, TNT Express. Oil and energy giant Royal Dutch Shell will spend almost $70 billion to buy BG Group.

Stock buybacks tend to be positive for equities as well. One of the main stories on Friday was General Electric's (GE) announcement of a $50 billion stock buyback. That rivals the $50 billion stock buyback announcement from Apple Inc. (AAPL) about two years ago. AAPL's buyback is expected to be completed this year. GE's news was part of a major restructuring plan. They plan on selling up to $165 billion worth of assets. This will help pay for the $50 billion buyback and another $40 billion worth of dividends between now and 2018.

The U.S. dollar is up five days in a row but this failed to stop the rally in crude oil. Oil rallied +4.4% last week and is up three weeks in a row. This is somewhat surprising as oil inventories inside the United States continue to build. The American Petroleum Institute reported that inventories grew by 10.9 million barrels last week. That was the biggest one-week surge in inventories in 14 years. That pushed current levels to a new 80-year record (about 482 million barrels).

In the chart below the blue line is our current level of crude oil inventory. The shaded gray area is the five-year average range.

EIA Chart of the U.S. oil inventory

Oil production continues to surge even though active rigs in the U.S. fell for the 18th week in a row. The Baker Hughes rig count saw active rigs drop by 40 last week to 988. This number is now down -48.8% from its September 2014 high of 1,931.

The U.S. isn't the only one producing record oil. OPEC's official quota for the cartel is no more than 30.0 million barrels per day. In March OPEC produced 31.5 mbpd. That's up +1.2 mbpd from the prior month and up +2.0 mbpd from March 2014. Saudi Arabia generated a record-settling 10.3 mbpd last Month. The Saudi's claim they can produce more than 12 mbpd if they wanted to.

There was another big story in oil last week. One oil exploration company in the United Kingdom claims that their onshore site in southern England has tapped a reservoir with 100 billion barrels of oil in it. That's an astonishing amount and would be more than double the amount of oil that Britain has pumped from the huge North Sea oil fields over the last 40 years (source: CNNmoney). Of course it is important to note that most of the time drillers can't access all the oil. Typically only 3% to 15% may be recoverable.

Economic Data

It was a relatively quiet week for U.S. economic data. The ISM non-manufacturing (services) index slipped from 56.9 in February to 56.5 in March. Numbers above 50.0 suggest growth. The wholesale inventory data for January 2015 was revised from +0.3% to +0.4% and February's number was reported at +0.3%.

The weekly initial jobless claims number bounced from 267,000 two weeks ago to 281,000 last week. Yet the four-week moving average has fallen to 282,250, which is the lowest level since mid 2000 (15 years). The latest job opening number hit a 14-year high at 5.13 million job listings.

Investors were keen to read the latest FOMC minutes from the last meeting. Analysts want to find any clue to help them predict when the Fed might raise rates. Unfortunately the minutes released on Wednesday showed a very divided committee. Some members argued that the Fed should raise rates in June while others remain worried that the economy is still not strong enough to endure a rate hike. The group of fed governors are worried about lack of improvement in consumer spending and wage growth. They also noted how the dollar's strength might limit economic growth.

Central Banks

There were several central bank meetings last week. The Bank of England, Bank of Korea, Bank of Japan, Reserve Bank of Australia, and the Reserve Bank of India all met independently. All of them left their interest rates unchanged.

Overseas Economic Data

Inflation, or rather deflation, remains a serious concern in Europe. The Eurozone Producer Price Index (PPI) gauge on wholesale inflation rose +0.5% in February but it was down -2.8% from a year ago. Eurozone retail sales slipped -0.2% for the month but were up +3.0% from a year ago. Meanwhile in you can't make this up category the country of Switzerland sold ten-year bonds with a negative yield. A few European countries have had negative yields for a while but this was a new bond offering and investors were willing to buy these bonds even though Switzerland is going to charge them to hold their money.

Looking East the country of Japan said their Machine Tool Orders data rose +14.6% from a year ago. China said their Consumer Price Index (CPI) for March was down -0.5% from the prior month but up +1.4% from a year ago. Their wholesale PPI was down -4.6% from a year ago. Bloomberg ran an article last week where one of their analyst had just toured the country and what they saw was worrisome. In their opinion Chinese economic activity was very slow. They saw a country filled with idle cranes and empty construction sites with half-finished, abandoned buildings. Comments from Chinese Premier Li Keqiang last week didn't help. Li said, "At this time, the national economy is running smoothly, but downward pressure continues to grow." That might be an understatement with Chinese growth at 24-year lows.

Major Indices:

The big cap S&P 500 index managed a +1.7% gain last week. The index broke through short-term resistance near 2,090 and closed above the 2,100 mark for the first time in three weeks. The 2,090 level is hopefully new support. Now the index is approaching overhead resistance at its February and March highs near 2,115 and 2,120 Year to date the S&P 500 is up +2.1%.

chart of the S&P 500 index:

Thanks to a concentration of semiconductor and biotech stocks the NASDAQ delivered a strong week. The composite index rallied +2.2% and is once again challenging the 5,000 level. The 5,000 mark is round-number, psychological resistance. You can also see the NASDAQ has a trend line of higher highs that has been resistance in the past. We can probably expect support/resistance at every 50-point interval (4950, 5000, 5050, etc.) Year to date the NASDAQ is up +5.5%.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index ($RUT) continues to push higher but momentum slowed a bit last week. The trend of higher lows is bullish. Currently the $RUT is approaching its all-time high (and new resistance) near 1,268 set last month. A breakout here would be bullish for the wider market. We can watch for short-term support near 1,240. Year to date the $RUT is up +5.0%.

chart of the Russell 2000 index

Economic Data & Event Calendar

There are a number of economic reports being released this week. The PPI and CPI will provide a look at inflation in the U.S. We'll get two regional Fed surveys from New York and Philadelphia. The Fed will also release their monthly Beige book data. Yet all of this will likely be overshadowed by the first full week of Q1 earnings announcements.

Economic and Event Calendar

- Monday, April 13 -
The first full week of Q1 earnings season begins.

- Tuesday, April 14 -
U.S. Retail Sales for March
Producer Price Index (PPI)

- Wednesday, April 15 -
New York Empire State manufacturing survey
Industrial Production
Federal Reserve Beige Book

- Thursday, April 16 -
Housing Starts & Building Permits
Philadelphia Fed survey

- Friday, April 17 -
Consumer Price Index (CPI)
University of Michigan Consumer Sentiment survey

Additional Events to be aware of:

April 29th - FOMC policy update
May 7th - Election in the United Kingdom

Looking Ahead:

Earnings, earnings, and more earnings will be the main story this week. Three months ago Wall Street was expecting 2015 Q1 earnings growth of +5%. Today estimates are anywhere from -1.9% to -5% versus a year ago. Thomson Reuters is forecasting S&P 500 earnings to fall -2.9% in Q1. FactSet is projecting a -4.7% in Q1, a -2.1% decline in Q2 but a +1.6% rise in Q3 2015.

Everyone already knows that the sharp rise in the U.S. dollar has hurt sales and margins for big multi-nationals. About 50% of revenues for the S&P 500 companies are outside the United States. We can expect everyone to blame the dollar for their poor performance. There might be a silver lining here. Expectations are so low that corporate results might actually surprise to the upside - as in they will not be as bad as feared. This could actually fuel stock market gains.

I'm warning readers now that this could be a volatile earnings season. Odds are good we are going to see some spectacular earnings misses. The reaction in the individual stocks could be drastic. Wall Street will be focused on corporate guidance and what business executives have to say about the rest of 2015.

These week there are dozens of companies reporting. Here is a brief list of some of the bigger companies reporting this week:

Financials: JPM, WFC, BAC, SCHW, USB, C, GS, AXP,
Technology: INTC, GOOGL, SNDK, CY, STX,
Transports: CSX, JBHT, DAL,
Industrials: HON, GE,
Healthcare: JNJ, UNH,


It is widely believed that the Federal Reserve's QE program and easy money policies helped fuel six years worth of stock market gains in the U.S. The Fed has stopped their QE program but Japan and Europe have picked up the QE baton. Japan's central bank is in the middle of a massive QE program in their effort to shock the country out of deflation. Europe's central bank just launched their QE program in March this year and it's expected to last until September 2016 (or longer). There are actually 23 central banks focused on easy money policies to stimulate their economies and cheapen their currencies. This is fueling widespread market gains.

T.I.N.A. stands for There Is No Alternative and suggests that stocks are the only investment that people can choose because interest rates are so low. Yields on a U.S. ten-year bond are at 1.95%. A Japanese 10-year note yields 0.33% while a German 10-year bond has a yield of 0.16%. The yields in Switzerland are negative. If you're an investor, would you rather buy bonds or would you rather buy stocks, especially with most of the world's central bank trying to lift asset prices and boost their economies?

Lack of alternatives is driving stock prices higher around the world. The Japanese NIKKEI index rallied past the 20,000 mark for the first time in 15 years this past week. The Chinese markets are surging. Hong Kong's main index and the main Shanghai index both rallied to new seven-year highs last week. The Shanghai index is up about 90% in the last year.

European stocks are in rally mode. Britain's FTSE 100 index, the German DAX, and the Euro STOXX 600 index all hit all-time highs this past week. The MSCI All Country World Index (ACWI) has also broken out to a new all-time high. Bloomberg reports that the value of global equities has surpassed $70 trillion.

Weekly Chart of the MSCI All Country World Index

The week ahead also has another big event for Americans and that's tax day. April 15th is the tax filing deadline. Believe it or not but 2/3rds of Americans have already filed their taxes. The average tax refund so far has been more than $2,800. This could be bullish for the U.S. economy. A lot of folks will spend their refund on bills and debts. However, a good chunk of it could make its way into the stock market or fuel more consumer spending.

Right now the market's trend is higher. I'm somewhat optimistic that earnings expectations are so bad that we could actually see stocks rally if corporate results manage to come in bad but still better than expected.

~ James