The S&P 500 Indices posted the worst two-week opening in history

BY  | FROM  | 2016-01-18 13:14

It was the week that couldn’t—it couldn’t reverse the worst opening week in history, and worse, it added to the damage, making it the worst two-week opening in history.  The two-week run has cost global investors USD 3.83 trillion, with USD 1.41 trillion coming out of the pockets of S&P 500 investment holders (USD 547 billion from Dow Jones Industrial Average holders).  Oil is the headline reason, which did its part by closing under USD 30 (at USD 29.70), with more now jumping on the how-low-can-it-go bandwagon, speculating oil in the USD “teens.”  While we do not doubt oil’s ability to take the markets down, the two-week run does have other fall guys.  Specifically, economic data in the U.S. was not good this week, as layoffs stayed in the news, and wage increases remained in the “indicators that it will increase” category only. 

So we have the question for the U.S. extended weekend (Monday is closed for a U.S. holiday): is this a correction (officially at -11.75%) within a Bull market (still up 178% from the March 2009 low), or the start of the long-absent Bear (the last Bear market was in 2007-09, with the market declining 56.8%)? In economic news, the November JOLTS reports came in with 1.6% more jobs for the month and 5.43 million current job openings (but it was still 4.2% off the July 2015 5.67 million high).  

Chinese exports for 2015 came in at -1.4%, the first decline since 2009, as imports were off 7.6% for 2015.  The weekly EIA Petroleum report showed a small increase in oil inventories (0.2 million barrels), when a decline of 5.1 million barrels was expected, with gasoline inventories growing (8.4 million barrels).  The December export report posted a year-over-year decline of 6.5%, as imports fell 8.2% year-over-year, quantifying the impact of a strong U.S. dollar.  The Retail Sales report missed expectations, as did the ex-autos component.  The PPI for the full-year 2015 rate was -1.0%, as the PPI ex-Food and Energy rate was 0.3%; both of which showed little evidence of inflation (with the Fed target being 2.0%). Industrial Production and Capacity Utilization also missed their estimates, adding to downward pressure. In M&A, Ireland-based pharmaceutical issue Shire PLC (SHPG; off 4.5% for the week) said it would buy cancer drug issue Baxalta (BXLT; up 0.3% for the week) for USD 32 billion in cash and stock, after failing in its first bid in August 2015, which was an all-stock deal (Baxalta holders will hold 34% of the combined issue).

In layoffs, U.K. oil giant BP (BP; up 0.9% for the week) said it would lay off 4,000 (of its 80,000) workers over the next year.  Industrial issue General Electric (GE; up 0.1% for the week) said it would sell its appliance unit to Chinese issue Haier Group for USD 5.4 billion.  The fallout from GE’s purchase of Alstom’s power-equipment-making unit was that GE announced the layoff 6,500 European workers. On an issue basis, Insurance issue MetLife (MET; up 1.5% for the week) said it may divest some of its U.S. life insurance unit to ease the capital burden under new federal regulation. Gas and petroleum issue Williams Companies (WMB) declined 20.7% for the week and was off 35.4% for the two-week opening, as its business prospects remained unclear. Market volatility continued, as daily swings in prices (and moods) made markets unstable.  After the worst opening week in history, the market made it the worst two-week opening in history. 

For the week, the market declined 2.17% to close at 1,880.35, off 8.00% year-to-date, and off 11.75% from the May 21, 2015 closing high of 2,180.82—putting the index in an official correction.  Strategists noted that the sell-off appeared to be partially emotionally inspired, as foreign markets sold off more (the Shanghai was off 18.0% for those two weeks, with the Nikkei off 14.3%), and that the U.S. economy was in better shape than most.  That statement was tested this week as big banks posted earnings, which did appear healthy, although they declined as the lowering tide pushed most issues down.  It will be fully tested next week, as earnings become more commonplace, and the following week, when almost a quarter of the issues will report.

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