This commentary originally was sent to Stocks Under $10 subscribers on Feb. 19. Click here to learn more about this dynamic service.
This was a short trading week, following Monday's holiday, but it was still the best week for U.S. stocks in 2016. Traders sought out bargains, as many stocks had posted double-digit percentage declines in the first six weeks of the year. Indeed, the CBOE S&P 500 Volatility Index (VIX) dropped 18% this week, as traders swapped out of U.S. treasuries and moved back into stocks.
Despite some sense of normalcy returning to the market this week, we believe that readers should remain alert. Prices remain leveraged to volatile swings in crude oil prices and the bearish sentiment on the Investors' Intelligence sentiment survey remains near panic levels. In addition, fed funds futures are pricing in just a 40% chance of a rate hike by February 2017. As a result, we'd be prepared to put more of our cash to work, if buying opportunities arise.
Next week will be busy on the economic front, including several reads on the housing market. Thursday offers a look at durable goods orders, in addition to the weekly jobless claims. On Friday, we'll get the first revision to fourth-quarter GDP growth. Economists are expecting the paltry 0.7% reading to be cut to 0.4%.
As earnings season winds down, we remain on the verge of an earnings recession. 86% of the S&P 500 has posted quarterly results and fourth-quarter aggregate earnings for the S&P 500 are down 4.75% year-over-year, on top of a fractional decline in the third quarter. While S&P CapitalIQ says that earnings would be up 1.8% without energy sector, they also note that only 65% of companies have exceeded profit expectations, which is below the historical average.