TRADING THE WEEK: Institutions ‘Unwilling to Sell’


The U.S. equity market will likely continue in somewhat of a holding pattern this week after last week’s economic data did little to change investor sentiment.

Traders noted that with the lack of new issuance and little fresh insight into the direction of the economy the markets would likely fluctuate with modest volatility around key headline events rather than a change in the fundamentals. The fact that it increasingly appears the Federal Reserve will not move key interest rates at its June meeting is providing a floor for prices and volume.

“No one wants to be out of the market, and fresh cash is still out there,” said a senior floor trader. “Even though the market looks a little ‘toppy’ institutional accounts are unwilling to sell.”

Last week, the S&P 500 rallied on Tuesday, but by Friday afternoon the market had given back all the gains and then some.

Another trader noted that stocks are attractive relative to some other asset classes.

“Bond yields just don’t look attractive right now to justify selling,” he said. “And the dollar continues to support equities, so it’s more of a ‘let’s just stay the course’ type of mentality.”

Also, according to a research note from Goldman Sachs, corporate repurchases are a large source of U.S. equity demand.  The firm forecast S&P 500 gross buybacks will rise by 7% to $600 billion in 2016.

Trading last week saw the major indexes rise after soft economic data – the most notable was the weekly jobless claims data which touched a one-year high at 294,000. This followed the weak April non-farms payroll data of 160,000.

The tepid job growth is helping provide a floor for stock prices and trading as the chance of a hike in interest rates by the Federal Reserve in June becomes more of a long shot.

The number of Americans filing for unemployment benefits unexpectedly rose last week, touching the highest level in more than a year, which could raise concerns about labor market health in the wake of the slowdown in job gains in April.

Last week saw a few notable happenings in the U.S. equities market, both of which included Citadel.

First, the U.S. Department of Justice has subpoenaed information from Citadel and KCG. The DOJ is interested in how the two firms have handled customers’ stock trades. According to reports, the DOJ will specifically look at how customers’ orders were routed to determine if Citadel and/or KCG executed these orders in the best interest of clients or the firms.

Second, Citadel is in talks to purchase Citigroup’s electronic market-making unit Automated Trading Desk. Automated Trading Desk designs and develops automated limit-order trading systems for trading companies and also the buy- and sell-side. It is also considered one of the first high-frequency trading firms. Citi purchased ATD back in 2007 for $680 million.

This Week’s Major U.S. Economic Indicators of Interest:

Monday US Homebuilders Survey
Tuesday Wholesale Inventories
Consumer Price Index
Housing Starts and Building Permits
Industrial Production
Capacity Utilization
Wednesday April FOMC Meeting Minutes
Thursday Weekly Jobless Claims
Philadelphia Fed Survey
Leading Economic Indicators
Friday Existing Home Sales



Featured image by Rawpixel/Photodune

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