The general sense from financial strategists and the commentators around them is to look at earnings reports like what was put out there from Caterpillar, Microsoft and a number of other big-name companies, see their disappointments (in part the result of the dollar’s strength, which seems to have surprised the hell out of a lot of people, judging by the Tuesday selloff) and wonder why the Fed might consider holding the line with its “coming soon!” approach to raising rates before long. Add to that all the recent moves by the various other worldwide central banks to lower rates – the Danes, the euro zone, the Canadians – and the Fed looks even more out on an island with the harder line that it is taking at this point.
Wednesday’s Federal Open Market Committee statement isn’t likely to change all that much in that regard. The Fed is more likely to nod to conditions worldwide, acknowledging that it cannot, however, conduct monetary policy for the globe, and try to continue toward its path to higher rates at a time when global commodities prices have slumped dramatically in the face of concerns about weak growth in China and Japan and the ongoing difficulties in Europe.
Among the struggling companies in the storied Dow Industrials Index sits McDonald’s, which faces a level of competition from myriad regional rivals that it hasn’t seen for some time. These rivals like Habit Restaurants, Five Guys and IPO candidate Shake Shack are offering fresher ingredients (albeit often at a higher cost).
It’s not for nothing that McDonald’s has seen several straight months of same-store sales declines, so investors are looking to revenue figures due Friday to see if the fast-food chain is able to arrest the trend or not.
The equity market has maintained something of a weak trend of late. Stocks have been uninspiring on days when the market goes up and more impressive in their declines, and the ongoing pain being felt around the globe, manifested in the commodity complex’s weakness, is still too much to bear when thinking about the stock market.
Something like this happened a few months ago, too, when the initial shock of a sharp decline in oil prices took a toll on equity managers, particularly a number of hedge fund types who were long energy (and remain long energy, so they’ve been taking all kinds of pain lately). The difference, as Reuters wrote last week, was that earnings were a saving grace at the time, and they’re not anymore.
The surprise move Thursday from the Swiss National Bank has had the effect of confusing a lot of people about a lot of things: the SNB’s intentions, the timing, the ancillary effects and who the losers are.
Yet, the move should, at least in the United States, take a back seat to the possibility of a correction in equity markets (judging by fund flow figures that show more money moving away from U.S. stocks), ongoing (and growing) concerns that earnings won’t be much of a salve this quarter, and uncertainty over the ongoing carnage in the commodities markets.
Sometimes, technicals and options can exploit and overwhelm investors even as the fundamentals get a little insane. Some of that happened on Tuesday and figures to remain in play through the end of the week, when we see options expire.
The S&P 500 noticeably traded between about 2,000 to 2,050 on Tuesday. Barring some kind of conflagration that knocks the market lower as a result of bad news out of the oil markets, Russia or Greece (OK, not Greece, who are we kidding), it would not be surprising to see the markets vacillate between those two points through the rest of the week, and the options markets are responsible in large part.
Jan 13 (Reuters) – U.S. stocks looked set to snap a two-day
losing streak on Tuesday as trading moved into early afternoon.
Then, in the space of an hour, all the day’s gains vanished
in a spate of high-volume selling, leaving investors once again
with concerns about oil, global growth, and all of the market’s
other persistent fears of late.
As we enter earnings season, there are some headwinds for various corners of the S&P 500, which itself still hovers just a few percentage points from an all-time high.
The energy sector is, of course, going through a drastic re-pricing, as markets for underlying commodities continue to fall. Other sectors may not see the ancillary benefit from declining energy costs as quickly, so the net negative is going to outweigh the positive, at least for the fourth-quarter reports.
The market’s in a bit of a swoon now, so it is difficult to suss out where some of the bright spots will be when it comes to the effect that oil’s decline has on markets and on the economy. The pullback has been severe, with analysts furiously downgrading the shares of energy stocks – among other sectors – and overall revisions sliding, given the heavy focus many companies have internationally, accounting for about 45 percent of the revenues of the S&P 500.
The small-cap sector is a bit less affected by the international pull, with non-U.S. sales accounting for around 15 percent of overall sales in the S&P 600, according to Howard Silverblatt of S&P.
There’s something of a disconnect right now when it comes to the expectations the Fed will raise rates before long – the markets still see it as happening in late-2015, the most recent poll of primary dealers puts it in the mid-2015 area – and the way in which inflation expectations overall have dropped in the last few weeks, given the plunge in oil prices.
We’ll be seeing some data later on Tuesday on service-sector sentiment, out of both Markit and ISM, that should give a sense of what the sector is seeing in terms of demand growth and prices being paid. And so while energy is a part of that, there is a definite sense the economy pulled back a bit in the fourth quarter after two very strong quarters of growth.
U.S. markets stumbled a little out of the gate in 2015, after a third year of double-digit gains. The market is having a weak go of it Monday morning, and funds are moving over into the bond market to continue the now-into-three-years run of “are you kidding me with these yields” that’s likely to confound more than a few people this year.
The expectation is that the markets will find a way to muddle through various issues that have investors worried over the idea that this is going to be a flat, go-nowhere kind of year, with a few rallies and a few corrections, so a lot of running to go nowhere.