Not even a 2% gain in the Dow Industrials and the S&P 500 on Friday could undo the negativity surrounding equities. The only positive I could see, is that stocks closed at their highs for the day on extremely heavy volume, and on the heels of a three-day weekend. What’s causing the stock market rout include a slowdown in earnings, adjusting to valuations for the reduced outlook for profits for many companies and the inability for the Federal Reserve to provide guidance on future monetary policy. Add to this, slow growth in many emerging markets – especially China and Japan – and oil prices signaling the lack of an imminent recovery anytime soon. And I am not surprised that the prospects of a Bernie Sanders or a Donald Trump in the White House is coincidental to the discontent among investors. Hence, traders are heading for the exits and moving to safer ground in fixed income, gold and cash. Gold prices soared $81/oz. to $1,239 on challenging monetary prospects. Bottom line, the major averages are down over 11% in the first six weeks of the New Year.
The Federal Reserve, in my opinion, is completely clueless and running out of options. Not ruling out negative interest rates sent shock waves throughout the financial sector, sending bank stocks lower by 2.3% on the week, despite a strong recovery on Friday. Oil recovered at week’s end on the prospect that the United Arab Emirates may consider cooperating with other OPEC nations in cutting production, but there is nothing definite. The possibility, however, sent oil prices sharply higher on Friday after falling to around $26/bbl. in mid-week. West Texas crude shot up 11.5% on the chance, its largest one-day gain since 2009, but off twelve-year lows. Not a single sector made the plus column during the week with the Dow off 1.4% and the S&P 500 lower by about 1%. The NASDAQ settled lower by 0.6% with technology stocks moving the needle somewhat higher after recent weakness.
The stock market continues to remain under severe pressure and selling often picks up on any fresh declines in oil prices, temporary rallies, additional turmoil in the global equity or currency markets or on signs that the world’s financial institutions could be in some trouble. That said, a lot of the negativity is priced in to the market and I don’t believe the state of economic affairs here in the U.S. is as bad as the news media purports. In the meantime, enjoy the Presidents’ Day holiday.
Here is the answer to last week’s trivia question: Which country, according to Forbes, ranks highest for being the best for business? Denmark, New Zealand, United States, Singapore? Answer: Denmark. The United States ranks 22 on the list and fell in the rankings for the sixth straight year with low scores on monetary policy and bureaucracy.
Today’s Trivia Question: The Coca-Cola Co. is in a dispute with the U.S. Patent and Trademark Office on its Coke Zero trademark. The challenge to Coca-Cola is being led by rival? PepsiCo, Dr. Pepper Snapple Group, Cott, or Monster Beverage.