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U.S. Looks to Join Global Stock Rally Tickled by Japan Stimulus

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January 29, 2016

(Friday pre-market) The Bank of Japan doesn’t want to wait around for deeper evidence of an economic setback. Policymakers there surprised global markets on Friday with a shift to negative interest rates, the first such move in its history. Its decision set off broad market gains that scooped up the U.S. stock market in the mix.

Meanwhile, a mixed bag of earnings news and a report showing slower U.S. economic growth in the final months of the year could dull some of the apparent upside lift from Japan’s news.

Sharp U.S. futures gains followed a 2.8% higher close for Japan’s Nikkei stock average and 3.1% rise for China’s Shanghai Composite. Europe’s leading equity measures were broadly higher. U.S. markets, still tethered to oil markets, advanced in Thursday’s session, handed extra juice from Facebook’s (FB) upbeat earnings news.

The U.S. Federal Reserve acknowledged global economic and market ripples at its meeting this past week. It took no action and left traders reconsidering the pace at which the U.S. central bank might continue to remove overly easy monetary policy.

But Japan is working in the other direction. The bank decided to introduce negative rates to “pre-empt the manifestation of [downside] risk and to maintain momentum to achieve the price stability target of 2%,” members said in a statement released after a two-day policy meeting. “We will cut the interest further into negative territory if judged as necessary,” the central bank said.

On the U.S. economic front, Q4 gross domestic product—the broadest measure of economic production— expanded at a 0.7% annual rate from September to December, government data showed. That’s a markdown from 2% growth in Q3 and 3.9% in Q2. The economy expanded at a 2.4% clip last year, the same as in 2014, the Commerce Department said. The U.S. hasn’t topped 3% growth since 2005.

For the U.S., the late week bounce caps a tough month dominated by Chinese market distress, oil’s weakness, and a mixed to mostly higher slate of U.S. earnings reports. For January, the S&P 500 (SPX), in figure 1, is on track for a roughly 7% drop as of Thursday’s close. The Dow Jones Industrial Average ($DJI) is on track for a nearly 8% drop. The tech-heavy NASDAQ Composite (COMP) is tracking some 10% lower.  

SPX stock chart

FIGURE 1: STRONG FINISH TO UGLY JANUARY?

The S&P 500 (SPX), plotted here on TD Ameritrade’s thinkorswim® platform, is on track for a nearly 7% January loss. There could have been a deeper rut to start the year save for a late-week bounce. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Amazon’s Holiday Miss. Amazon.com (AMZN) suffered a post-close tumble and could weigh on the broader stock market’s performance Friday. Industry analysts had been forecasting more than quadruple earnings growth on a year-over-year basis for the e-commerce giant. Assumptions were based on strong retail sales and growth of Amazon Web Services. In reality, the company reported Q4 profit of $1 a share, not the $1.55 that Wall Street expected. Street analysts had been estimating record revenue for the company of $35.9 billion; Amazon did hit a new revenue record, but it just missed expectations with sales of $35.7 billion.

Cloud Lifts Microsoft. Microsoft (MSFT) is a gainer after the software giant reported fiscal Q2 earnings of $0.62 a share on revenue of $23.8 billion, or an adjusted $0.78 a share on revenue of $25.69 billion. Analysts surveyed by FactSet had forecast earnings of $0.71 on revenue of $25.27 billion. Microsoft said cloud-services revenue rose 5% to $6.3 billion for the quarter.

In Other Earnings. Visa (V) delivers an earnings report largely in line with Street expectations, sending its shares higher, while rival MasterCard (MA) shares fell after its mixed report featured a Street-beating profit but a Street-missing revenue figure. Oil concern Chevron (CVX)twisted to a quarterly loss versus the year-ago comparable as sales dropped.

Good trading,

JJ

@TDAJJ Kinahan

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