The Way It Is
At first glance, the mission seemed simple enough. There was an easily identifiable economic agenda laid out by the most pro-business president in a generation. His party had control over both of the nation's legislative bodies. Not only that, but his party also had the support on the local level of the vast majority of the nation. Things would surely get done now.
Well, things are certainly moving, but as far as the defined agenda goes, is it fast enough? Kind of, sort of ... in some cases. Both the president's bombastic style, and the partisan nature of Washington itself will be distractions that you, the trader, must learn to work around. This, my colleagues, is just the way it is.
Reason to Love
Speaking of progress, that is exactly what we saw on the deregulatory front this past Friday. The president signed an Executive Order (as if you didn't know) that really gets the ball rolling toward gutting Dodd-Frank. Relaxing this law could unleash a wave of increased dividends, and share buybacks across the financial sector. Bang! bank stocks took off for the day. Not to mention, capital markets and consumer finance names that also moved in lock-step with the KBW Bank Index.
According to an RBC Capital Markets graphic posted last night by the Wall Street Journal, Citigroup (C - Get Report) , JP Morgan (JPM - Get Report) , Wells Fargo (WFC - Get Report) , Bank of America (BAC - Get Report) , Goldman Sachs (GS - Get Report) , and Morgan Stanley (MS - Get Report) all have between $10 billion and $28 billion worth of estimated excess (trapped) capital. For me, this prospect for deregulation is as much of a reason for holding on to bank stocks as is the prospect for higher interest rates.
That prospect for a higher fed funds rate really did not change all that much after the release of January jobs data by the Bureau of Labor Statistics on Friday. The headline print for job creation was undeniably strong, yet came with nasty revisions going back two months that nearly wiped out the entire measure of that statistical beat. On top of that, the number of persons working part-time for economic reasons actually grew by more individuals than did that headline number.
Then, there's wage growth, or rather the lack thereof. How disappointing is that 0.1% m/m wage growth that came in a month when 19 of the 50 states implemented mandatory increases in their state minimum wages? The next rate hike remains priced in for the June meeting as it was prior to Friday. The odds of an increase in March remain very low, at 13%.
Reason to Watch
Healthcare stocks have underperformed the general marketplace since the end of summer. I have avoided the space myself for some time now, as the entire sector had become an apparent political football. Regardless of who had won the presidential election, something would have had to have been done in the space, as the ACA had become unaffordable, and the quality of coverage withered for those forced to buy in.
Now, the president indicates that replacing the ACA could take all year, and possibly not until next year. So, what seemed like the new administration's "job one" moves toward the end of the line. I do get it. If health care reform were an easy puzzle to solve, it simply would not still be the controversial issue that it is. For the marketplace, our issue is: What does this mean for stocks in the space?
As I have always been gun-shy when it comes to biotech, and I think it likely that big pharma will remain under intense scrutiny, (especially if repealing, and/or replacing the national law takes longer than expected), then I think that for anything other short-term technical trading, I remain on the outside looking in for these stocks.
10:00 -- Labor Market Conditions Index (January): Expecting 1.0, December -0.3. This particular item will not move the marketplace upon release. I do, however, find it very interesting. For those not exactly sure what we are talking about here, this is a still-experimental tool that was first released in October of 2014. Just what is it? This item is a broad index of 19 (already released) labor market-related sub-components that the Federal Reserve Bank uses to track overall labor market progress. You may or may not be surprised to learn that this index has illustrated a labor market that has been in overall contraction for eight of the first eleven months of 2016. Expansion is expected for December, but this should be a close call, given that strong headline number for job creation that contrasted with a bevy of sloppy underlying numbers.
16:30 - Fed Speaker: Philadelphia Fed Pres. Patrick Harker is set to speak from San Diego, California. This will be the second public appearance by a sitting member of the FOMC since last week's policy decision. Chicago Fed Pres. Charles Evans was predictably dovish Friday morning. It will be interesting to get Harker's (Harker is seen as somewhat hawkish) take on the jobs data. Harker has also been a proponent of reducing the Fed's principal reinvestment program as a way of tightening policy once the fed funds rate hits 1%. This is something that I can get on board with, though I would like to see this as the next step (prior to further rate increases) if policy direction were to retain its current implied trajectory.
Sarge's Trading Levels
These are my levels to watch today for where I think that the S&P 500, and the Russell 2000 might either pause or turn.
SPX: 2323, 2312, 2299, 2293, 2282, 2272
RUT: 1394, 1388, 1383, 1375, 1371, 1364
Monday's Earnings Highlights (Consensus EPS Expectations)