The major market averages rose yesterday on slightly higher but below average volume. Volume would have finished lower were it not for end of quarter window dressing in the final hour when portfolio managers adjust their positions to improve the appearance of their portfolios. Leading stocks are mostly staging reaction bounces after severe breakdowns since the beginning of March, and no buy points in the form of pocket pivots have been forthcoming. Meanwhile, the alleged "rotation" is occurring in defensive stocks, including oils and foods. Yesterday we saw a number of food stocks including Tyson Foods (TSN), Dean Food (DF), and Cal Maine (CALM) moving higher. In our view, this is not the stuff that strong bull markets are made of, but as money is being shoveled into these areas as institutions move to a more defensive posture, it serves to prop up the S&P 500 relative to the NASDAQ Composite, which has taken the brunt of selling in March. Despite the past two day's rally, the NASDAQ remains below its 50-day moving average.
Federal Reserve Chairwoman Janet Yellen said Monday that the recovery still feels like a recession to many, which is why the central bank will keep its “extraordinary” support for the economy for “some time to come.”
“For the many reasons I have noted today, I think this extraordinary commitment is still needed and will be for some time, and I believe that view is widely shared by my fellow policy makers at the Fed,” Yellen said. “In this context, recent steps by the Fed to reduce the rate of new securities purchases are not a lessening of this commitment, only a judgment that recent progress in the labor market means our aid for the recovery need not grow as quickly."
Despite Yellen's confirmation that QE is indeed forever, the market's rally was somewhat muted, and for now the action can only be viewed as a reaction rally after the earlier selling in March. Futures are up slightly this morning, but it is not clear that the move will hold. Investors should continue to exercise caution and avoid getting sucked into premature rallies.