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Stock Sellers May Come Up for Air but Market Vulnerability Remains

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September 29, 2015

An early Tuesday stock market bounce was taking shape but action could remain volatile as Wall Street posted its lowest close since late August in Monday’s bruising session. Continued declines for biotech shares and a fresh injection of Chinese-linked economic jitters were pinned for Monday’s slide, raising some doubts that the Federal Reserve’s restrained confidence in U.S. growth goes far enough. The reaction was global; Japan’s Nikkei is now negative for the year.

Investors are closely monitoring economic data for signs that U.S. growth is as strong as Federal Reserve powers believe it is. The Fed passed on an interest rate hike in September but said transitory factors shouldn’t keep it from removing ultra-loose monetary policy in coming months. Investors want to see data that backs that guarded confidence. Some investors are nervous that sub-surface economic cracks—triggered by China’s slowdown and continued selling in commodities—could be deeper than thought. Due out mid-morning, a reading on September consumer confidence is expected by Wall Street economists to have slipped to 94.5 from August’s 101.5.

SPX-stock-index

FIGURE 1: FIVE STRAIGHT.

A one-year view of the S&P 500 (SPX) charted on the new-look thinkorswim® platform reveals wider intra-day movement. SPX on Monday logged a fifth consecutive lower close and closed below 1900 for the first time since August 25. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Biotech Washout. The bruised biotech sector extended last week’s slide into this week, a loss that’s rippling through the broader market. The sector logged its worst weekly performance in seven years last week, landing it in bear-market territory when measured as a 20% drop from its July peak. Losses were pinned on several factors, but analysts do note that selling accelerated when presidential hopeful Hillary Clinton criticized drug prices and advanced a cost-curbing plan earlier this month.

Commodities Driving Stocks, Too. Commodities volatility continues to influence stock trading and Fed rate decision-making as the extent of its low-inflation influence is tricky. Crude oil prices did recover a sliver of their nearly 3% slide from Monday, while metals pricing remains down early Tuesday. Miner Glencore did recover a slice of its some 29% tumble in Monday’s session, seen amid fears its debt burden could prove crushing given the rout in commodities prices.

Goldman Sachs Downgrades Stock View. Pointing to China’s slowdown and a spotty U.S. economic performance, analysts at Goldman Sachs cut their S&P 500 year-end target to 2,000 from 2,100, joking (sort of) that “flat is the new up,” in a note dated Monday. The investment bank also cut its 2015 S&P 500 earnings-per-share forecast to $109 from $114, representing a 3% year-over-year decline in earnings. For 2016, Goldman sees SPX climbing 5% to 2,100.

 

Good trading,
JJ
@TDAJJKinahan

NC
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