STOCKS RALLY FOR THE WEEK: Here's what you need to know

Stocks slipped a bit on Friday but finished the week with gains to cap a strong week in which the S&P 500 and the Dow both traded to near their best levels of the year.

First, the scoreboard:

  • Dow: 17,896, -29, (-0.2%)
  • S&P 500: 2,080,. -2, (-0.1%)
  • Nasdaq: 4,938, -7.7, (-0.2%)
  • WTI crude oil: $40.40, -2.7%

Doha

Depending on how you count your weeks, this week’s biggest event will take place on Sunday with a meeting between OPEC and non-OPEC oil-producing giants set to take place in Doha, Qatar.

The meeting has been dubbed by some analysts as the biggest meeting in the oil market in three decades.

Elena Holodny has the full rundown here, here, and here.

But, as has been the case with word out of OPEC and related sovereign oil producers in the last couple years, markets are bracing for a disappointment which would likely see global production held near current levels. Levels, we’d note, which have led to an oversupplied market and prices near multi-year lows.

On Friday, West Texas Intermediate crude oil, the US benchmark price, fell 2.7% to $40.40.

In a note to clients ahead of the report, Ed Morse at Citi wrote, “The main unknown going into Sunday is what Saudi Arabia’s position will be. The world’s largest petroleum exporter has been silent about whether it attends and what position it stakes out.”

We’ll be watching.

In other oil news, the latest US rig count showed the total number of rigs in use fell by 3 to 351, the lowest level in operation since November 2009 while the combined oil and gas rig count fell again to another record low.

US Economy

Stop me if you’ve heard this before: it was another not-too-hot, not-too-cold day in US economic data.

On Friday we got two readings on the manufacturing sector and another on consumer confidence. There was one beat and two disappointments.

The New York Fed’s latest reading on manufacturing activity in the region crushed expectations, rising to 9.6 from a previous reading of 0.6, indicating a considerable uptick in activity. “The drop in the dollar, the slowing decline in oil sector capex and, perhaps, signs of life in China’s industrial sector, are all helping to turn around U.S. manufacturing,” wrote Pantheon Macroeconomics’ Ian Shepherdson in a note following this report.

However!

The Federal Reserve’s March reading on industrial production and factory utilization crossed the tape about 45 minutes later and was a big disappointment. Production fell 0.6% in March with utilization declining to 74.8%. This drop was largely due to a 2.9% drop in mining output, which was the biggest monthly loss since September 2008.

The University of Michigan’s preliminary reading on consumer confidence in April unexpectedly declined to 89.7 from a final reading of 91 in March.

Following this data dump, Chris Rupkey at MUFG, who had been generally bullish on the US economy and hawkish on Fed policy over the last year or so, wrote a notably downbeat assessment of the economy saying that this data was clearly saying something is wrong out there.

“Net, net it is not too much of an exaggeration to say the sky is falling when factory production is in retreat,” Rupkey wrote. “The worldwide slowdown in growth and the strong dollar has hurt American exports and has led many factories to padlock the gates. In many ways, this is exactly what a recession looks like and the Federal Reserve will be increasingly alarmed about the outlook for growth if this downward trend does not turnaround quickly in the next few months.”

Noted.

Technical Analysis

Technical analysis sometimes gets a bad rap.

Really, it’s just another way for investors to analyse markets as most of what technical analysis hopes to achieve is a distilled reading on supply and demand: who wants to buy, who wants to sell, who has the edge?

Of course, if we’re talking about investors who are hoping to work normal jobs and save money for retirement then sure, technical analysis is a bit silly. So, too, is fundamental analysis. This is why there are financial planners you can hire to do the work for you!

Anyway.

In a note out Friday, J.C. O’Hara, chief market technician at RBN Securities and one of the best technical whizzes around, noted that what is an arcane shift in markets to the layperson could be signalling a big — and bullish — shift in markets in the coming weeks and months.

Here’s J.C.:

We consulted the charts and found the majority of the time when the S&P 500 traded for an extended period of time without testing its Upper Volatility Band, the market had a Bear or Sideways Trend. Bull Markets have a tendency to test the Upper Volatility Band often. What we find very interesting is how the market responds to the first close above the Upper Bollinger Band after an extended period of time below (we use 6 months as extended). The data concludes this positive volatility in price movement is an early signal that the preceding Bear/Trendless market is concluding and a new Bull/Uptrend market is near.

Basically, the market began to push the upper edge of its recent trend after a long time stuck in neutral. And this move could signal better days ahead for stocks.

College

College enrollment peaked in 2011 and has fallen to pre-recession years as the economy has improved.

So, this is a good reflection of the economy now — the implication is that students going to work over going to college is an indication that more opportunities exist for less-skilled workers.

Or as Bank of America wrote in a note to clients, “When there is high unemployment, people will attend school given the lack of job opportunities. In other words, the opportunity cost of school declines during recession.”

Earlier this week the team at Bespoke Investment Group wrote a great note about whether we’ve reached “peak education.”

The thesis here is that perhaps the trend from the tech bust through the aftershocks of the Great Recession — mixed with abundant government funding — led to a boom in higher education as potential workers saw additional credentialing as the thing to get them over the economic hump while forces outside their control weighed on employment prospects.

I think intuitively it seems like college is too expensive and that it can’t possibly make sense for every high school graduate to pursue additional education. But then you see the unemployment rate breakdowns by educational attainment that seems to suggest no, this intuition is very wrong, you should definitely go to college.

Then, however, there’s a question of causality: are unemployment rates lower for college graduates because they graduated from college or because the type of person who goes to college is less likely to find themselves out of work for reasons like being a general rule-follower, being afraid of standing outside mainstream conventions and thus comes off as an attractive candidate on paper and in an interview, and so on.

I found it interesting, at least.

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