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Markets Retreat as Investors Step Back Ahead of Earnings Season

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April 5, 2016

(Tuesday Market Open)The markets are starting the week off wading in a sea of red in what could be seen as housecleaning in the first week of a new quarter. Comments from members of the Federal Reserve are still making headlines, but could investors be finally turning their attention to fundamentals ahead of the kick off to earning’s season next week?  

Yesterday we faced a wall of worry as the VIX, what Wall Street calls its “fear gauge,” jumped almost 8%. Bond yields were down as investors searched for fixed-income products. Gold fell too, but that safe haven seems to be getting traction today.

This isn’t just a U.S. markets retrenchment either. Most European and Asian markets retreated in a global selloff that some analysts say could be tied to falling oil prices and worries abroad about negative interest rates. Oil has had a nice run in the last few weeks but is now facing its third straight day on a downward trajectory, falling below $36 a barrel.

Speaking of interest rates, Federal Reserve members who aren’t Chair Janet Yellen are out making speeches this week about their thoughts on when interest rates will rise. Chicago Fed President Charles Evans said in a speech Monday in Hong Kong that the U.S. central bank has to be proactive and aggressive to meet the Fed’s inflation targets. We’re reminded, however, that Yellen is the boss and her dovish comments rule the roost. On Wednesday, the Fed will release minutes from its last meeting and we’ll get to see how contested—or not— that meeting was.

This is the third straight day of oil prices declines amid worries around the world that major crude producers won’t come to a freeze agreement when they meet later this month. That started Friday, when Saudi Arabia said it wouldn’t be on board unless Iran was.  

Reports on the docket today that could influence trading include the ISM nonmanufacturing survey, which will give some insight into what’s working or not in the services sector, and the February JOLTS, the job openings and labor turnover survey. The Fed has said that it’s watching JOLTS numbers, but remember it’s just another data point for the central bank.

Though Monday’s trading ended with a thud—the Dow, Nasdaq and S&P 500 all finished to the downside—there were spots of brightness. Take the S&P: It ended its upward streak but still had a number of components that touched all-time highs. They were mostly consumer-based stocks like McDonald’s (MCD), Coca-Cola (KO), PepsiCo (PEP) and Home Depot (HD), as well as a handful of utilities stocks. Elsewhere, losses in commodity-related and industrial stocks overwhelmed advances in healthcare shares. 

SP500-ends-session-lower

FIGURE 1: LOSING MOMENTUM?

The S&P 500 (SPX), plotted through the end of Monday on the TD Ameritrade thinkorswim® platform, lost traction despite 42 stocks on the index having reached all-time highs. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Would You Wait Two Years for a New Car? Tesla pricked its own bubble yesterday when it reported that it missed its Q1 target of auto deliveries amid much hoopla about the Model 3 sedan it unveiled last week. It was a “severe shortage” of parts, Tesla said, because of its own “hubris” of “adding far too much new technology” to its Model X. That doesn’t bode well for the Model 3, which logged more than 300,000 reservations by Monday. The starting price of the electric car that Chief Executive Elon Musk claims will be able to travel some 215 miles on a single charge is an affordable $35,000, he says. Will Tesla be able to deliver those order by 2017? “This is kind of crazy,” Musk was reported as saying about the reservations. Is it crazy to think some of those orders won’t be on the road until 2018?

Why Aren’t Consumers Spending? The Money Anxiety Index, a measure of consumers’ level of financial stress, was flat in April at 64, according to its creator Dan Geller. That indicates “uncertainty and financial anxiety among consumers about the economy,” says Geller, a behavioral finance expert and author. “Although the economy is improving, consumers are not completely on board with the personal consumption, thus putting the brakes on the economic growth,” he says. Consumer spending is pivotal to economic growth because it accounts for some two-thirds of GDP. The index, which is a monthly measurement of the consumer anxiety levels over more than 50 years, was trending downward since May when it was at 69.9. It was at its lowest angst level over the last 12 months in February, at 62.7.

Good Trading,
JJ
@TDAJJKinahan

Economic Report Calendar

FIGURE 2: THIS WEEK'S ECONOMIC REPORT CALENDAR.

Source: Briefing.com

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