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Stocks Struggle Amid Global Questions, Interest Rate Rethink

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February 9, 2016

(Tuesday Pre-Market) U.S. stocks twitched in volatile trading Tuesday but held up relatively well considering a more than 5% drop for Japan’s Nikkei stock average and general Asian and European market unrest. Mild oil gains emerged despite more bearish supply news and helped to limit the stock market’s retreat.

Stocks are struggling with traction to start the week. Major averages fell sharply on Monday, led by a 1.8% drop for the tech-heavy NASDAQ Composite (COMP). The broader S&P 500 (SPX) shed 1.4% (figure 1). It’s now down 9% for the year, a step closer to the closely watched 10% marker that stirs talk of bear markets.

Conditions could remain volatile in the lead-up to Wednesday’s and Thursday’s Congressional testimony from Federal Reserve Chair Janet Yellen. She’s addressing the economy and taking lawmaker questions. But, as Wall Street has now priced out strong odds for more interest rate hikes from the Fed this year, any dropped hints on policy from the Fed chief could carry potential trading implications. 

S&P 500 index declines

FIGURE 1: BACK-TO-BACK DROP.

The S&P 500 (SPX), plotted here through Monday on TD Ameritrade’s thinkorswim® platform, posted back-to-back sharp declines Friday and Monday. The next big test emerges at the 1812 low briefly hit in January. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Fresh Oil Warning. The International Energy Agency on Tuesday warned oil prices could fall again because Iranian output increased as part of a broader surge in OPEC output. The cartel has failed to agree on production cuts, according to financial media reports. “It is very hard to see how oil prices (/CL) can rise significantly in the short term,” the IEA said in its closely watched monthly report. “In these conditions the short-term risk to the downside has increased,” it said. OPEC’s crude oil output rose by 280,000 barrels a day in January to 32.63 million barrels a day. The boost was driven by sanctions-free Iran, whose output rose by 80,000 barrels a day in January to 2.99 million barrels a day, the IEA said. Markets confound sometimes: early Tuesday, U.S.-traded crude futures rose modestly despite the IEA news, getting a short-term lift from dollar weakness. London-traded Brent also gained.

Morning JOLT? Several reports tracking the job market rank among those closely watched on Wall Street. Today brings one that has gotten more traction namely because the Fed’s Janet Yellen likes it so much. The U.S. job openings, or JOLTS, report for December is due for release at 10 a.m. Eastern. Yellen has often said it’s one of her favorite economic snapshots; she pays attention to the quit rate, a proxy of worker confidence, included in the report. Last Friday, the latest payrolls report showed smaller-than-expected job growth but an increase in January wages.

Earnings: Consumer Snapshot. Coca-Cola (KO) shares gained modestly after its adjusted earnings and revenue topped Street expectations, driven by organic growth. Chief Executive Muhtar Kent said the company is planning to accelerate the pace of a streamlining program with plans to refranchise 100% of its company-owned North American bottling territories by the end of 2017, according to MarketWatch. KO also agreed to refranchise its Chinese bottling operations. Fast-food chain Wendy’s (WEN) issued preliminary Q4 results above the Street’s current view and said it anticipates same-store sales growth above what industry analysts were expecting. CVS Health (CVS) met Street expectations with its earnings, sending shares lower. Sears Holdings (SHLD) warned of a revenue shortfall and said it is accelerating store closures.

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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