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Market Update

Stocks Track Commodities Pullback, Fed Timing Puzzle

July 27, 2015

Stocks tracked commodities into a bearish funk last week and early Monday—a shift in backdrop as investors navigate another heavy round of corporate earnings reports plus a Federal Reserve meeting in the final trading days of July.

Chinese stock declines followed another weak manufacturing reading there tugging Europe and early U.S. action along in step. This, in the first week we’ve not talked about Greece’s uncertain volatility in some time.

Already, the S&P 500 (SPX) had suffered a four-day losing skid and is down 2.5% from highs seen a week ago. At that time, the index was making a run toward its late-May record closing levels and the CBOE Volatility Index (VIX), the market’s “fear gauge,” was near 2015 lows (figure 1).



After falling to 2015 lows a few sessions back, the CBOE Volatility Index (VIX) jumped 1.08 points to 13.84 Friday. Sometimes called the market’s “fear gauge” because it tends to move higher when equities falter, VIX added nearly 2 points on the week. Data source: CBOE. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Earnings news has been mixed since the SPX made its latest run at knocking out record highs. The latest flurry of earnings reports were dogged by lagging revenue figures even as firms shored up spending and other measures to improve their bottom lines. A strong dollar continues to cut into sales for the big multinationals, but global growth concerns are also taking a toll on spending. Looking forward, the earnings parade continues this week. It will be especially busy for the financial, energy, and technology sectors. So, yes, earnings will likely continue to drive market sentiment. On tap: Facebook (FB), Twitter (TWTR), Baidu (BIDU) on the tech front. And from the oil patch: Exxon Mobil (XOM) and Chevron (CVX).

But that’s not all. A major washout across most commodities has its grip on stocks, too.

Gold and More at Multiyear Lows

Stock market attention has swung toward other markets, namely commodities, which some investors believe could be a harbinger of a deeper global growth slowdown than Wall Street is braced for. Those worries were amplified Friday after a report showed China’s purchasing managers index falling to 48.2 for July, a 15-month low for this gauge of manufacturing activity. It also marked the fifth straight reading below the key “50” threshold that divides expansion from contraction.

The increased anxiety is spilling over into some of the more economically sensitive market sectors on Wall Street. For one, basic materials suffered steep losses amid falling metals prices. Gold has shed $80 in the past month and is at five-year lows of $1,095 an ounce. It fell in 11 straight sessions before moving modestly higher Friday, but has tugged copper and other industrial metals along for the ride. The basic materials sector, which includes many mining companies, lost 5.4% last week.

Meanwhile, falling crude oil prices weighed on energy-related stocks, and the industrials took it on the chin, too. In fact, all nine SPX sectors finished in the red last week, and the index dropped 2.2%.

Yet the bigger picture continues to show a mixed market in 2015. A reading of less than 14 from VIX is hardly eye-popping. While the aforementioned industrials, energy, and materials sectors are showing losses through late July, gains in health care, consumer names, and technology have helped offset the weakness. The SPX sports a 1% year-to-date gain.

Here’s a breakdown by sector:

Last WeekYear to Date Through 7/24
Health Care-2.7%9.5%
Consumer Staples-0.7%2.5%
Consumer Discretionary-0.3%9.3%
S&P 500-2.2%1.0%

What’s the Fed Thinking Now?

The economic calendar is light on statistics this week, but Wednesday’s Federal Reserve interest rate meeting could trigger whippy trading in the bond market, where traders may start to reprice their Fed expectations. Of course, expected changes in market interest rates are often reflected in the equities markets as well.

This week’s meeting, while not expected to end with the first interest rate hike since 2006, is a potential chance for investors to learn just when that first hike may become reality.

Markets were privy to a clue last week when staff economists at the Federal Reserve made some notes public by mistake. Those economists expect a quarter-point U.S. interest rate increase this year, according to forecasts the Fed (mistakenly) published on its website. The rate forecast was included with a series of bearish projections on U.S. economic growth and inflation that were presented to policymakers at their June 16–17 meeting, Reuters and other news outlets reported. The Fed issued a statement that this view does not necessarily reflect that held by the rate-setting panel.

Most industry economists do believe the Fed will raise interest rates at least once this year. After this week, the Fed meets in September, October, and December.

Keep in mind that Friday is the last day of July, so end-of-month position squaring is likely to drive some large institutional trades ahead of the weekend. Those flows may favor sectors that are expected to see the most robust profit growth and best potential in the months ahead.

Good trading,



This week’s U.S. economic report calendar. Source:

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