A day that saw one of the market’s smallest percentage changes since the selloff began offered hope that perhaps stocks truly have found a floor.
The S&P 500 rose 0.3% to 2662.94 today, while the Dow Jones Industrial Average advanced 39.18 points, or 0.2%, to 24,640.45. The Nasdaq Composite gained 0.5% to 7013.51. The 10-year Treasury declined 0.02 percentage point to 2.837% today.
It wasn’t always easy, though, as the market started the day lower—and looked like it had settled into a range that would have it finishing the day in the red. Instead, the three major indexes rallied to finished higher on the day:
The folks at Todd Market Forecast liked what they saw today. “After two gonzo up days, a decline would not have been surprising, but after opening down 180 on the Dow, bids came in and a bottom was in after about 10 minutes,” they wrote.
But this isn’t simply about trading. Deutsche Bank’s David Bianco notes that while stocks still look expensive on an absolute basis—the S&P forward P/E dropped to 17.1, which is 20% higher than its average since 1960 but down from 30% before the correction—they’re currently low enough to withstand the 10-year rising to 3.5% or so, “provided recession risk stays low.”
Let’s hope it does.
Dollar Still a Safe Haven?
The dollar’s been sold off pretty hard this year. Investors, however, continue to treat it as a safe haven.
That doesn’t seem too likely considering that the U.S. Dollar Index has dropped 2.6% so far this year, and 11% during the past 12 months. The dollar outperformed during the recent market correction, having gained 2% from Feb. 1, the day before the selling began in earnest, through Feb. 9, when the stock market found its bottom.
HSBC strategist Dominic Bunning notes that the dollar outperformed “other traditional safe haven currencies” including the Japanese yen, the Swiss franc, and the euro. “These safe haven currencies are actually underperforming compared to recent periods when we have had similar moves in equity markets,” Bunning writes.
He offers a number of possible reasons for the dollar’s outperformance, but it might simply be the fact that the market experienced only a correction. “The equity correction so far is just that—a correction rather than a full on bear market,” Bunning writes. “If we were to head towards the latter, it is likely that the traditional safe havens would regain their status.”
The dollar certainly hasn’t stayed strong. The U.S. Dollar Index dropped 0.5%, to $89.74, today.
Lumber Liquidators Breaks
Lumber Liquidators (LL) looks broken.
Yesterday, Wedbush analyst Seth Basham cut the flooring company’s stock to Neutral from Outperform, causing its shares to tumble 8.8%. So today, Oppenheimer analyst Brian Nagel released a note defending Lumber Liquidators. Unfortunately, it didn’t work. Its stock fell 5.6% to $23.13 today, and has broken support in the mid-$20s:
What did Nagel say? He noted that turnarounds, like the one Lumber Liquidators is in the middle of right now, rarely happen in straight lines. So even though it could disappoint when it releases its earnings later this month, Nagel still sees reason to believe that the company can continue to make progress. Three of them, actually.
For starters, on its third-quarter conference call, the company “implied clearly that the underlying operational and financial structure of the chain had improved significantly.” It also provided investors with some early fourth-quarter same-store-sales color that suggested sales were on track to meet guidance. Finally, demand for flooring remains strong “as evidenced by continued outsized growth in the carpet and other floor coverings category of the PCE report,” Nagel writes.
Maybe. But eyeballing that chart, don’t be surprised if Lumber Liquidators makes a run at the low $20s.
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