The opening was 3rd worst opening for the S&P 500

BY  | FROM  | 2016-01-25 15:58

If last week was the week that couldn’t, this week was the week that “struggled.”  “Struggling” was the word used by Bank of America to describe its efforts to increase revenue, but the word quickly became the greeting and status quo comment, as Wall Street’s grim faces and “is there an end to this” were replaced by mild head shaking, with “struggling” the answer to how they are doing.  The adoption of the word was appropriate, as the market struggled to stop the declines and trade on fundamentals. The grim news was that for the 14 trading day’s year-to-date, only 65 issues were in the black and 438 remained in the red, with 30 issues off at least 20% and another 130 issues off at least 10%. 

The opening was 3rd worst opening for the S&P 500 and the 2nd worst for the Dow Jones Industrial Average. On a slightly longer-term look, within the S&P 500, 263 issues are off at least 20% from their 2015-to-current closing high.  Some may classify Friday’s 2.03% gain as a relief rally or rebound, but the reality, and the hope, is that it is the end of the declines, and the start of U.S. issues trading on their own fundaments – earnings and economics. Earnings should dominate the market next week (meaning issues should start to trade more on their fundamentals than the price of oil and last quantifiable Chinese growth release), with the added tail or head wind from the companies’ forecasts. 

Friday’s initial fourth quarter GDP report could also go a long way to reinforcing the view that the U.S. economy is on strong ground—of course, the report could also show…(but let’s not go there, at least not until next Friday). In economic news, Chinese fourth quarter GDP came in at 6.8%, the slowest rate in 25 years, missing the 6.9% estimate, as Industrial Production also missed expectations (coming in at 5.9%).  Initially, close was good enough, as fears of an even larger miss were alleviated, with the Shanghai up over 3%; but by day’s end the miss was classified as another example of declining Chinese growth—and markets declined. 

The report also showed that the service industry accounted for more than half of the economy, at 50.5%, for the first time in modern Chinese history.  The International Monetary Fund reduced its 2016 global growth forecast to 3.4% from 3.6%, and 2017 to 3.6% from 3.8% (it was the third cut in a year, and more are expected).  The International Energy Agency cut its 2016 oil demand estimate, citing high supply. 

The Russian ruble declined to a new low, as it reacted to falling oil prices.  Markit's Eurozone PMI Flash report for January declined to 53.5 from December's 54.3.  A report said Iran might start regular crude oil shipments to Europe next month.  President Draghi said the ECB may boost stimulus at its March 2016 meeting, starting the anticipation all over again.  In the U.S., the 2015 CPI came in at 0.7%, as the Core CPI came in at 2.1%.  The NAHB Housing Market Index came in lower than expected (at 60, when 62 was expected), as housing starts posted a decline (off 2.5%) when a gain (of 1.8%) was expected, and permits declined 3.9%, which was better than the expected 5.1% decline.  The Existing Home Sales report beat estimates, posting a 14.7% increase when a 9.2% gain was expected (the year-over-year rate was up 7.7%).

The PMI Manufacturing Flash report also came in stronger than expected (at 52.7, when the estimate was 51.0). In layoffs, Johnson & Johnson (JNJ; off 0.3% for the week) said it would cut 3,000 workers in its medical devices division and take a USD 2-2.4 billion charge. The market volatility continued, as did the daily mood swings, but not to the extremes of the past two weeks, and the week ended on an uptick.  After the worst two-week opening in history, the market appeared to stop the decline, as trading was at its heaviest since May 2010.  For the week, the market posted its first gain after three weeks of decline, which had taken the market down 8.77%.  The market added 1.41% for the week to close at 1906.90 (thanks to Friday’s 2.03% gain), and was off 6.70% year-to-date, which is the third-worst opening (14 trading days) in index history (2008 holds the record, off 10.75%, with 2009 coming in second, off 8.39%).  Global markets also rebounded in the second half of the week but remained well in the red, as the Shanghai was off 18.59% year-to-date and the Nikkei was off 10.90% for the year.

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