The Week In Review

9/25/15

The stock market finished a down week on a sloppy note with the S&P 500 (-0.1%) surrendering a solid intraday gain during the final two hours of action to end flat. The benchmark index locked in a weekly decline of 1.4% while the Nasdaq Composite (-1.0%) underperformed, ending the week lower by 2.9%. For its part, the Dow Jones Industrial Average (+0.7%) ended Friday in the green as blue chips avoided volatility in the biotech space.

Equity indices spiked out of the gate in response to early morning strength in the futures market, which coincided with solid gains in Europe. To that point equity indices in France, Germany, and the UK rebounded after yesterday's struggles, gaining between 2.6% and 3.0% with automakers taking part in the rally. That rally lifted U.S. equity futures, but once the U.S. session began, the S&P 500 nestled into seven-point range that held into the afternoon.

The S&P 500 drifted near its high through the morning, supported by the financial sector (+1.5%) in particular. That heavily-weighted group held the lead after Federal Reserve Chair Janet Yellen spoke last evening, reminding that the Fed is still intent on raising rates by year's end. Meanwhile, most other sectors also held solid intraday gains, but a late afternoon dive in the biotech industry group proved too large to be ignored by the market.

Interestingly, the Nasdaq Composite hinted at the afternoon weakness, steadily marching lower from its opening high throughout the day. Large cap biotechnology listings like Amgen (AMGN 138.60, -4.91), Celgene (CELG 108.45, -5.43), Gilead Sciences (GILD 100.14, -2.37), and Regeneron (REGN 491.43, -30.57) lost between 2.3% and 5.9% while the iShares Nasdaq Biotechnology ETF (IBB 310.24, -15.98) declined through the morning, accelerating its retreat into the afternoon to end lower by 4.9% after being down more than 6.0%.

For the week, the ETF sank 13.0%, suffering from a one-two punch that started with Monday's remarks from presidential candidate Hillary Clinton, who said she is interested in introducing price controls into the pharmaceutical industry. In addition, yesterday's reminder from Fed Chair Yellen about the potential rate hike by year's end may have also factored into the selling considering the industry has benefited greatly from rock-bottom rates. The weakness in biotechnology ensured a sharply lower finish for the health care sector (-2.9%), which surrendered nearly 6.0% for the week.

Elsewhere, the consumer discretionary sector (unch) displayed relative strength intraday, but fell victim to the afternoon selling, ending in-line with the market. That masked an 8.9% surge in the shares of Nike (NKE 125.00, +10.21) after the athletic apparel giant cruised past earnings/revenue estimates and reported higher than expected futures orders.

Interestingly, the afternoon dive in equities had essentially no impact on Treasuries as 10-yr note held a bit above its morning low into the close with its yield rising four basis points to 2.17%.

Meanwhile, the CBOE Volatility Index (VIX 23.26, -0.21) started the day with a two-point loss, but inched higher through the morning, indicating some investors used the early strength to increase their hedges. The VIX then accelerated its climb during the afternoon to end little changed as the slide in the S&P 500 invited wholesale demand for downside protection.

Today's affair invited above-average volume with more than XXX million shares changing hands at the NYSE floor.

Economic data was limited to the third revision of Q2 GDP and the Michigan Sentiment Index:

Second quarter GDP growth was revised up to 3.9% in the third estimate from 3.7% while the Briefing.com consensus expected the reading to remain at 3.7%

GDP increased 0.6% in Q1 2015

Real final sales were revised up to 3.9% from 3.5%, representing the biggest quarterly gain since a 4.3% increase in Q3 2014

Overall, the revisions in the third estimate were strong across the board. The only negative contributions came from inventories and net exports while all of the other sectors contributed more positively to growth in the third estimate

The University of Michigan Consumer Sentiment Index was revised up to 87.2 in the final September reading from 85.7 while the Briefing.com consensus expected a revision up to 87.0

The Expectations Index was revised up to 78.2 from 76.4, but is still down from 83.4 in August

The Current Conditions Index was revised up to 101.2 from 100.3, but remains down from 105.1 in August

On Monday, August Personal Income, Personal Spending and Core PCE data will be released at 8:30 ET while August Pending Home Sales will be announced at 10:00 ET.

Nasdaq Composite -1.1% YTD

S&P 500 -6.2% YTD

Russell 2000 -6.8% YTD

Dow Jones Industrial Average -8.5% YTD

Week in Review: Roller-coaster Ride Continues

The stock market began the week on a higher note despite seeing some intraday volatility. The S&P 500 gained 0.5% while the Nasdaq Composite underperformed throughout the day, but was able to settle just above its flat line. Equity indices rallied out of the gate with the advance continuing through the first hour of action. All ten sectors took part in the opening move higher, but health care was quick to surrender its gain. The countercyclical group ended lower by 1.4% while biotechnology struggled mightily, sending the iShares Nasdaq Biotechnology ETF (IBB 340.78, -15.98) lower by 4.5%. The biotechnology ETF lagged from the get-go, but the group accelerated its decline after presidential candidate Hillary Clinton sent out a tweet saying she is ready to unveil a plan that would target price gouging among specialty drug makers. Monday's selling dropped IBB below its 200-day moving average (347.36) to levels last seen at the start of September.

The market endured a rough trading day on Tuesday with the S&P 500 surrendering 1.2% while the Nasdaq Composite (-1.5%) underperformed. Equities spent the duration of the session in the red after gapping lower at the start. The opening stumble occurred in response to continued concerns about China's economic growth, which was manifested through weakness in commodity prices. Furthermore, European automakers struggled with Volkswagen plunging 19.8% to extend this week's loss to 34.7% after announcing the establishment of a EUR6.50 billion reserve in anticipation of costs associated with the Department of Justice probe into the company's diesel engines. European markets registered losses across the board with Germany's DAX tumbling 3.8%. Once the opening bell rang on Wall Street, the S&P 500 surrendered more than 15 points in short order and gave up another 20 into the afternoon. The index recovered about ten points during the final hour, but all ten sectors ended the day with losses.

The major averages registered their second consecutive retreat on Wednesday with the S&P 500 shedding 0.2% while the Nasdaq Composite (-0.1%) ended just ahead. Overall, the midweek session was a choppy affair that saw the benchmark index spend some time on both sides of its flat line. That trading dynamic resulted from mixed performance among the ten sectors as three top-weighted groups—technology (+0.2%), financials (+0.1%), and health care (-0.1%)—displayed flashes of intraday strength while most of the remaining sectors struggled. Notably, commodity-sensitive energy (-1.4%) and materials (-2.1%) finished at the bottom of the leaderboard while the industrial sector (-0.7%) also kept the market under pressure. Altogether, the three sectors responded negatively to the overnight release of China's preliminary September Caixin Manufacturing PMI, which fell to a 6.5-year low of 47.0 from 47.3 (expected 47.5).

Thursday ended on a modestly lower note after equity indices erased the bulk of their early losses. The S&P 500 settled lower by 0.3% while the Dow Jones Industrial Average (-0.5%) and Nasdaq Composite (-0.4%) underperformed. The final standing represented a notable shift from the morning dynamic that saw equity indices gap down at the start amid selling in Europe. To that point, markets in France and Germany both lost near 2.0% apiece with automakers facing continued pressure. BMW was among the weakest performers in Germany, falling 5.2%, with company executives pushing back against insinuations that the company may have taken a page out of Volkswagen's playbook, saying they are ready to provide vehicles for testing on demand. To be sure, the losses among automakers were not the culprit behind the slide in Europe, but they represented another source of pressure in market that has been wrestling with persistent growth concerns surrounding China. Those concerns were echoed by Caterpillar (CAT 65.80, -4.40) as the manufacturer of heavy machinery lowered its guidance and announced plans to reduce its workforce by 4,000 to 5,000 people by the end of next year. Shares of CAT settled lower by 6.3%, keeping the industrial sector (-0.7%) among the laggards throughout the day.