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Stock Market Unpredictability Continues; GDP Trimmed

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December 22, 2015

The typical “Santa Rally” may be in hibernation this year. Stocks were gearing up for another choppy session on Tuesday, struggling to build on Monday’s solid gains (figure 1) and continuing to follow the whims of the oil market as well as a cut to Q3 GDP. Back-and-forth trading weeks have been a common occurrence so far this month.

Thin, pre-holiday conditions are also likely to blame, with trading desks lightly staffed and markets due to close early on Thursday and shutter entirely on Friday for Christmas. European and Asian stock markets were also twisted in two-directional Tuesday trading, while the dollar fell versus its major counterparts. 

SPX stock chart

FIGURE 1: SOLID START TO WEEK.

The S&P 500 (SPX), plotted here on the thinkorswim® platform, logged a 0.8% gain on Monday, part of a late-session move that landed all major averages higher to kick off the holiday-shortened trading week. That target remains under close watch by some market technicians. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Crude Oil: Slight Recovery. Crude futures did retrace some of its recent weakness, with the U.S.-traded contract rising back above $36 a barrel in early Tuesday action and sending energy stocks higher in early action. Traders noted that contract rollover may be one driver behind higher trading, as fundamental factors of high supplies and spotty global demand have not changed. The mild rebound comes after London-traded Brent contracts hit their lowest since 2004. U.S.-traded West Texas Intermediate (WTI) touched below $34 a barrel to start the week for the first time since 2009. Another lift for WTI pricing came with the U.S. government decision to lift its 40-year export ban for crude oil. Exactly how much U.S. exports will affect the global market isn’t yet known, oil industry analysts remind us. But for now, the news has pushed WTI to within 46 cents a barrel of Brent.

GDP Haircut. Stock futures retained early losses after a government report showed a downwardly revised Q3 GDP reading. This broad measure of U.S. growth registered at 2%, the report issued this morning showed. That’s off the 2.1% previously recorded for the quarter but a touch better than the Street’s expected revised 1.8%. The revision was tied to a larger trade deficit and a bigger build in inventories than first recorded. Later in the morning, existing home sales data is expected by Street economists to show a slightly slower November pace compared to October.

Earnings Round-Up. ConAgra Foods (CAG) is an early gainer after the packaged food company beat the Street’s fiscal Q2 profit expectations. For the quarter currently underway, CAG said it expects adjusted earnings per share (EPS) to be “modestly higher” than the year-ago comparable, according to financial media reports covering the earnings. Nike (NKE) is due to report its fiscal Q2 results after the closing bell on Tuesday, a report that could offer a snapshot on strong-dollar impact on overseas profits and the overall strength of the consumer. Specifically, analysts reporting to Thomson Reuters are looking for average EPS of $0.86, up 13.1% over last year’s results, on topline sales growth of nearly 6% to $7.81 billion.

Good Trading,

JJ

@TDAJJKinahan

Economic release calendar

FIGURE 2: ECONOMIC AGENDA.

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

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JJ Kinahan

JJ began his career in 1985 as a Chicago Board Options Exchange...

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