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Market Update

First They’re Up, Then Down, Back Up. Day 4 on Market Rollercoaster Begins

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September 14, 2016

(Wednesday Market Open) The markets go up and the markets go down, and that’s been glaring in recent sessions as the three major benchmarks have swung wildly as volatility has appeared to have taken its toll. What’s in store for today?

In the early going, the Dow Jones Industrials (DJIA), the S&P 500 (SPX) and the Nasdaq Composite (COMP6) were up, then down and then again on a track that appeared as if they were ready to recoup some of Tuesday’s selloff. But the moves in either direction were small and there are no major reports on the books coming out to put a fire under the markets or stamp one out. And, with the Federal Reserve’s self-imposed quiet period ahead of next week’s meeting, there doesn’t appear to be any interest-rate chatter to move the needle. Might this be a mild trading session today?

The Return of Volatility  

The market fundamentals appeared to kick it in high gear Tuesday as the three major benchmarks stayed in the 1% Club by pulling back again deeper than that at the close. The descent, following a strong finish on Monday that was looking to recoup Friday’s losses, was led by a steep drop in West Texas Intermediate (CLV6) futures to below $45 a barrel. That accounted for about a 3% nosedive in prices, which settled at $44.90 after an alert by the International Energy Agency of a projected oil glut. Yep, it seems fundamentals, not Federal Reserve interest-rate decision speculation that moved the markets Tuesday.

That’s not to say the Fed didn’t make headlines—really, has there been a session in recent weeks when the Fed wasn’t in the news? Aside from the typical Wall Street pontifications about whether the Fed will lean dovish or hawkish at its meetings late next week, Atlanta Fed President Dennis Lockhart, long considered a pivotal player on the Fed team, scheduled his departure for early next year.

The DJIA undid Monday’s gains and then some, losing 258.32 point, or 1.41%, to settle at 18,066.75. The S&P 500 SPX saw all 10 of its sectors reverse course to the downside with the index finishing the session at 2,127.02, off 32.02 points, or 1.48%—essentially wiping out every inch of progress made on Monday. Of the 505 components that comprise the index, only 20 saw any upside activity Tuesday. This was the fourth of five sessions that the two benchmarks lost traction. And for the SPX, which had not seen a 1% move in either direction for 43 straight sessions, Tuesday marked the third in a row of greater than 1% moves. The Nasdaq Composite (COMP6) was able to hold on to some of its Monday advances, closing at 5,155.25, off 1.09%, or 56.63 points.

The Volatility Index (VIX), the market’s fear gauge, surged again Tuesday, up 18% to 17.85, its highest level since late June, pouring light on the apparent vast numbers of Nervous Nellies trading. In the early going, it was 2.24% to 17.40, still relatively high compared to the 12-level it has sat at since early July.

S&P 500

FIGURE 1: OOPS, THERE IT GOES AGAIN.

The S&P 500 (SPX), plotted through Tuesday’s close on the TD Ameritrade thinkorswim® platform, took another deep dive after Monday’s rally amid reports of an oil glut ahead. All 10 SPX sectors were in the red again, led by shares of energy stocks, to leave the SPX in space it hasn’t seen since early July. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Triple-Witching Reminder. Could some of this market rollercoaster be tied to Friday’s once-a-quarter expiration of options and futures contracts? This typically steps up trading activity ahead of the last hour of Friday’s session, what’s become known as the “triple-witching” hour, though it may impact trading throughout the run up to the expiration. Traders characteristically close, roll out of or offset their expiring options—a time to practice discipline—and with a Fed interest-rate hike on the table for next week, some traders may be trying to take some risk off the table ahead of that, according to analysts. Stay tuned.

Uncertainty Dogs Small Businesses. All this happy talk about an improving economy doesn’t seem to making it to Main Street where small businesses apparently are not seeing the same outlook that other bigger businesses might be. That’s according to the NFIB Small Business Optimism Index, which slipped in August 0.2 points to 94.40—well below the 42-year average of 98. The culprit? That same sense of ambiguity that appeared to haunt the markets most of the summer, according to NFIB. Oh, and then there’s the political climate.

“Once again, the NFIB survey showed no signs of strength in the small business sector,” NFIB Chief Economist Bill Dunkelberg said in a press release. “Uncertainty seems to be the major enemy of economic progress and the political climate is a major contributor to the high levels of uncertainty that we’ve seen. The current economic environment is not a good one for strong or sustained growth.”

What’s more, Juanita Duggan, NFIB’s chief executive, said a record-high 38% of owners cited the political environment for what’s holding back expansion. “Based on this data, small-business owners now blame the political climate for the declining economic conditions. We haven’t seen numbers like these before, and it’s alarming,” she said.

The NFIB Index, comprised by the National Federation of Independent Business, is composed of 10 seasonally adjusted components gleaned from answers of more than 600 of its members. They include questions about employment expectations to sales, inventory and credit conditions. Of the 10, five advanced, four declined and one was unchanged. Maybe the most striking change was in the seven-point fall back of small business owners’ six-month outlook. A majority, at 56%, said they were or had plans to hire, but nearly half of them, at 48%, said it was tough finding qualified candidates.

Median Household Incomes Surge. Goodbye income stagnation—at least for now. The Census Bureau said yesterday that seven years of stagnant and declining earnings were sharply reversed with the biggest year-over-year gain in median household incomes since the government started keeping track in 1967. The median—that point where half are above and half are below—jumped 5.2%, or $2,798, to $56,516, from a year ago, adjusting for inflation. Average income also rose, but at a slower rate of 4.5% to $79,263.

How did that happen? Poverty fell, health insurance coverage broadened and incomes grew thanks to several years of robust job gains, particularly for lower income workers, according to the Census Bureau. Some 2.4 million workers got full-time jobs last year and 3.5 million people got out of poverty, which is defined as a household income for a family of four at $24,257. That dragged the official poverty rate down to 13.5% in 2015 from 14.8% in 2014.

There are still wide gaps in the economic recovery, according to the Census Bureau. The median household income is lagging some 1.6% from where it stood in 2007 and is 2.4% lower than where it stood at its peak in 1999. And then there’s this, according to the New York Times: “Last year’s income gains do not fundamentally alter the economy’s long-term trajectory. Growth remains slow despite the Federal Reserve’s campaign to stimulate the economy. Predictions of faster growth, followed a few months later by disappointment, have become an annual ritual.” 

Good Trading,

JJ

@TDAJJKinahan

Economic calendar

FIGURE 2: THIS WEEK'S ECONOMIC CALENDAR

Source: Briefing.com

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