Major averages continue to consolidate gains as they finished close to break even on higher options expiration volume. Leading stocks continue to remain unimpressive in their showings with the big cap FANG stocks continuing to lag the major indices somewhat, or at least are failing to put in a leadership-quality showing.
Indeed, projected GDP numbers have been revised sharply lower by the Atlanta Fed while S&P earnings continue to decline. Meanwhile, economic data such as CPI, PPI, Retail Sales, Business Inventories, and Industrial Production and Capacity Utilization among others all fail to meet consensus estimates.
So while the fundamentals remain poor both at home and abroad, central banks are so far winning this tug-o-war as they continue to print money which finds a home in equities. "Don't fight the Fed" has become "Don't fight the Feds." Still, some notable headwinds include slowing global growth, downside earnings surprises, and the failed oil producer meeting in Doha.
Despite all the noise, our Market Direction Model has stayed with the trend and has remained on a buy signal since March 1st. Of course, this could change as the market's reaction to news is more important than the news itself.
Futures are lower by about -0.4% after the failure of key oil producers to agree on a production cap that could have tightened up the supply market. Hopes for a deal were a main catalyst in a rally that lifted U.S. crude prices more than 50% from their February lows. Oil is currently off about 4%.
That said, helping oil prices is the declining production in the form of shale players in the U.S. Crude production in the U.S. is forecast to fall to an average of 8.6 million barrels a day in 2016 and 8 million barrels a day in 2017, said the U.S. Energy Information Administration. Also, Kuwait will slow its production as workers strike by roughly 1.5 million barrels/day.
“Now it is a question of speed to see if the rate of U.S. production decline can offset the growth in OPEC production. If not, the oversupply will linger longer and prices will stay depressed,” said Nelson Wang, an energy analyst at CLSA.