Weekly Market Summary

SPX fell 1.5% Tuesday and then rose almost 1.5% on Thursday before closing lower again on Friday. In the process, it crisscrossed its 50-dma three times in four days.

The indices were highly mixed for the week: SPX was down 0.8%, NDX was down 1.9%, but RUT was up 1.2%.

Driving the fall in NDX was its largest component. Apple fell 2.4%. Recall that Apple had risen 25% since the start of the year into the end of February. It has since fallen 8%. Here is the set up we shared at its recent high.

What A Rising (or Falling) Dollar Means to the S&P

Attention is gravitating to the Dollar, and for good reason.

In the past year, the Dollar index is up 25%.  Since 1980, the Dollar has only risen that quickly in one year once before: the period leading to February 1985. That turned out to be the Dollar's high, unsurpassed since.

Weekly Market Summary

On Monday, all 4 US indices closed at new bull market highs. They all moved lower the remainder of the week. For the week, SPX and DJIA lost 1.5% while NDX lost 0.9%.

Almost all of the week's losses occurred on Friday following the monthly payroll release. The indices were generally down 1.5% on that day alone. Volume on SPY was 180m shares, the highest since the January 30 low.

Our overall view continues to be that 2015 will not be like 2013 or 2014. This is a year where fundamentals improve while equity prices mark time, allowing sentiment and valuation to fall back inline. This is a common pattern: large parts of 1994, 1996, 1998, 1999, 2004 and 2005 were similar. That November and December were the first back to back down months in 3 years bears out the change in character.

March Macro Update: Consistently Better Growth

In May we started a recurring monthly review of all the main economic data (prior posts are here).

At the time, the consensus view was that growth in wages and employment were accelerating and that this would soon lead to a meaningful increase in inflation above the Fed's 2% target. Our monthly review of the data has consistently shown this expectation to be premature.

This post updates the story with the data from the past month. We are now starting to see consistently better growth. Highlights:

• In the past 12 months, the average monthly gain in employment has been 275,000, the highest since 1994
• Despite improving employment, there hasn't been any notable sustained acceleration in wages
• Real personal consumption (70% of GDP) grew 3.4% in January, the highest rate of growth in 8 years. Real retail sales grew 3.5%
• The manufacturing component of industrial production grew 6.0% in January, the highest rates in 4 years  
• New home sales were the highest in 7 years for the second month in a row
• However, the inflation rate continues to decelerate. It has fallen to its lowest level since 2009  

Our key message has so far been that (a) growth is positive but modest, in the range of ~3-4% (nominal), and; (b) current growth is lower than in prior periods of economic expansion and a return to 1980s or 1990s style growth does not appear likely. This is germane to equity markets in that macro growth drives corporate revenue, profit expansion and valuation levels.

Let's review each of these points in turn. We'll focus on four categories: labor market, inflation, end-demand and housing.


Employment and Wages
The February non-farm payroll (295,000 new employees) followed the incredible 423,000 in November. NFP has been above 200,000 every month for 12 months in a row. It hasn't been above 200,000 that many months in a row since 1993-95.

In the past 12 months, the average gain in employment was 275,000, the highest since 1994.

What is noteworthy is that monthly NFP prints are normally volatile. Since 2004, NFP prints near 300,000 have been followed by ones near or under 200,000 (circles). That has been a pattern during every bull market.  The consistent strength in monthly NFP recently is simply remarkable.

An Employment Surprise Is Overdue

Tomorrow, the BLS releases its monthly report on labor, commonly referred to by its acronym, NFP (non-farm payroll).

This is the single most followed statistic about the state of the economy, giving onlookers a regular view into employment and wage growth.

 There are three things to know about the NFP data.

First: The most important is that the annual trend in growth has been very consistent. In the past three years, the rate has varied from 1.5% to 2%. In the past three months, that has started to exceed 2% for the first time in 15 years; the rate of growth in January was 2.3%, the highest since June 2000.