Equities have been following oil prices and oil prices have been shadowing growth in China. The result is the worst start of a new year for the stock market ever. To date, the Dow Industrials and the S&P 500 are lower by about 8%. The NASDAQ has started the year over 10% below where it ended trading in December and China’s major markets have now shed 18% from where it began the year. For the week, markets tanked for the third consecutive week, down another 2% and the S&P 500 is now in full-blown correction territory for the second time since August. The smaller-cap Russell 2000 retreated nearly 3.7%, closing at its lowest level since July, 2013. Crude oil prices settled below $30/bbl. off 11% for the week and is at levels not seen in twelve years. Not surprisingly, energy stocks gave back another 2.6% this last week and basic material stocks plummeted nearly 5%. Safe-have utilities was the only sector to show a small gain. The selling was widespread with 2,756 stocks on the NYSE declining vs. 461 advancing with 1,283 new 52-week lows. With a short market week ahead, traders headed for the exits in fear of more negative news on Monday from China and other global markets, which will remain open.
While JPMorgan Chase, CSX Corp. and Intel posted better-than-expected results, the outlooks were dim, at best. Banks, which should be showing strength with higher interest rates ahead are now faced with energy loans that may default and prospects of a worsening economy both here and abroad. Also, the Federal Reserve, which raised rates last month, may be slower to tick up as promised if the economy doesn’t improve as originally forecast. Overall, Wall Street hasn’t been able to find a good reason to get excited about stocks this year. Valuations were elevated coming into 2016, and earnings prospects were not all that great. It is early in the earnings season, but so far there haven’t been many shining stars. While there is no one who can predict the stock market accurately and consistently, the outlook is not good with few catalysts that can drive prices higher. Even low gasoline prices at the pumps and an improved employment backdrop have not translated into spending elsewhere. U.S. retail sales fell 0.1% in December, and were up just 2.1% in 2015, compared with a 3.9% annual gain the previous year.
In the holiday-shortened week ahead, earnings season will continue in earnest with a host of big names reporting their fourth quarter results. Thursday, Verizon Communications reports ($0.88 vs. $0.71) and Schlumberger will do well to have earned $0.63 per share down from $1.50 in the fourth quarter of 2014. As we have learned, even if earnings best expectations, top line figures and guidance for the remainder of the year will drive prices. In the meantime, enjoy Monday’s Martin Luther King, Jr. holiday.
Here is the answer to last week’s trivia question: EOG Resources is one of the largest independent oil and natural gas exploration and production companies in the United States. The “E” originates from its once parent company, which was? Exxon-Mobil, Encana, Enron or Enterprise Products. Answer: Enron. Formerly Enron Oil and Gas, the company was spun off from Enron in 1999 and changed its name to EOG Resources and trades on the NYSE.
Today’s Trivia Question: Who was the first African American member of the NYSE? Joseph L. Searles III; Travers Bell, Jr.; Jack Roosevelt “Jackie” Robinson; or George Ellis Johnson, Sr.