The Week In Review

9/18/15

The stock market ended the week on a broadly lower note. The S&P 500 lost 1.6%, surrendering 0.2% for the week, while the Nasdaq (-1.4%) outperformed, finishing the week higher by 0.1%.

Equity indices spent the entire Friday session in the red after heavy selling in the futures market ensured a lower start. The overnight weakness in futures was accompanied by a retreat in Europe as investors shied away from risk assets amid the persistent uncertainty. On one hand, Greece will vote for a new parliament on Sunday and it is unclear whether the potential transition of power will upset the bailout agreement with eurozone creditors. On the other hand, yesterday's FOMC decision to hold the policy line has re-invited the rate-hike uncertainty that had pressured equity markets going into the September meeting. The uncertainty remains in place because Fed Chair Yellen, in her press conference, maintained that FOMC members are still looking to raise rates before the year ends.

Today's retreat in stocks was accompanied by a rally in the Treasury market. The 10-yr note climbed throughout the day, pressuring its yield nine basis points to a two-week low of 2.13%.

All ten sectors ended in the red with cyclical groups leading the decline. The energy sector (-2.7%) spent the day well behind its peers as crude oil surrendered its weekly gain, ending today's pit session lower by 4.7% at $44.68/bbl.

Elsewhere, heavily-weighted financials (-1.9%) and industrials (-2.2%) also underperformed throughout the day, limiting the market's brief rebound attempt in the late morning. The likes of Citigroup (C 50.29, -1.36) and JPMorgan Chase (JPM 60.94, -1.71) both lost near 2.7%, responding to the prospect of lower rates for longer.

All things considered, the S&P 500 could have suffered a larger decline, but the top-weighted technology sector (-1.3%) showed some slight relative strength, thanks to Apple (AAPL 113.45, -0.47), which shed 0.4%. Another tech sector member, Adobe Systems (ADBE 81.25, +0.94), also fared better than the broader market, climbing 1.2% after reporting a bottom line beat and issuing cautious guidance.

With overall uncertainty running high, volatility protection was in demand, evidenced by a two-point spike in the CBOE Volatility Index (VIX 22.84, +1.70). Today's participation was well above average, largely thanks to quadruple witching. As a result, more than 2.1 billion shares changed hands at the NYSE floor.

Economic data was limited to the Leading Indicators report, which increased 0.1% in August after an upward revision made the growth rate flat (from -0.2%) in July. The Briefing.com Consensus expected the index to increase 0.2%.

On Monday, the Existing Home Sales report for August will be released at 10:00 ET (Briefing.com consensus 5.50 million).

Nasdaq Composite +1.9% YTD

Russell 2000 -3.3% YTD

S&P 500 -4.9% YTD

Dow Jones Industrial Average -8.1% YTD

Week in Review: Fed Holds Pat

The stock market began the week on a lower note with the S&P 500 surrendering 0.4% while the Nasdaq Composite (-0.3%) outperformed slightly. Overall, the Monday affair was very quiet with many investors sticking to the sidelines ahead of Thursday's FOMC policy announcement. To that point, fewer than 800 million shares changed hands at the NYSE floor versus a 20-day average of 984 million. A cautious tone was set during overnight action after China and Japan both released disappointing industrial production reports. Equity bulls attempted to turn the tide during European action, but their efforts were not successful with the selling spilling into the U.S. session. The key indices hit their lows shortly after 13:00 ET and remained near those levels until the close. Nine sectors registered losses while the utilities space (+0.3%) eked out a slim gain, which was aided by strength in Treasuries that sent the 10-yr yield lower by two basis points to 2.17%.

The market raced higher on Tuesday with the Dow Jones Industrial Average (+1.4%) pacing the advance while the S&P 500 (+1.3%) followed not far behind. Thanks to the broad-based rally, the S&P 500 erased all of its decline from Monday and then some, settling at its best level since August 28. Although the Tuesday tone differed greatly from Monday, it is worth noting that trading volume remained relatively light with 760 million shares changing hands at the NYSE floor. That total represented a notable decline from the 20-day average of more than a billion shares as some investors continued sticking to the sidelines ahead of Thursday's policy statement from the Fed and a potential fed funds rate hike. The rally began in the futures market shortly after the release of the Retail Sales report for August, which came in just below expectations (+0.2%; Briefing.com consensus +0.3%); however, core sales increased 0.5%, suggesting the presence of some underlying consumption strength. Stocks followed the report's release with a rally while Treasuries began a daylong retreat. The 10-yr note settled on its low with its yield higher by nine basis points at 2.28%.

The major averages strung together their second consecutive advance on Wednesday with the S&P 500 climbing 0.9%. The benchmark index extended its weekly gain to 1.7% while the Nasdaq Composite (+0.6%) underperformed, but still brought its week-to-date advance up to 1.4%. Equities spent the first hour of the day near their flat lines before racing higher alongside the energy sector (+2.8%), which had shown relative strength from the start. That strength was closely linked to the buying surge in crude oil futures that sent the energy component higher by 5.8% to $47.15/bbl. A significant portion of the rally developed after the release of the weekly EIA inventory report, which showed a draw of 2.104 million barrels.

Thursday ended on a lower note after the Federal Reserve made no changes to its policy stance. The S&P 500 shed 0.3% while the Nasdaq Composite (+0.1%) outperformed throughout the day. FOMC days are known for afternoon volatility and the Thursday affair lived up to that billing even though the policy statement from the Federal Reserve was virtually a carbon copy of the previous directive. The FOMC acknowledged positive labor market conditions in the U.S., but indicated that concerns related to an economic slowdown in China have outweighed the domestic positives. Ms. Yellen stressed that these developments have weighed on the inflation outlook, contributing to the decision to maintain status quo.