The Week In Review

1/8/16

The major indices ended their day under heavy selling pressure as the market was rebuffed on its muted rebound effort. Sliding oil prices, global growth concerns, and the future path of the federal funds rate remained in focus as investors appeared less than willing to buy into current market conditions. The S&P 500 (-1.1%) ended its session behind both the Dow Jones Industrial Average (-1.0%) and the tech-heavy Nasdaq (-1.0%). Including today's trade, the benchmark index has surrendered 6.0% to begin the year whereas the Nasdaq has tumbled 7.3%.

Overseas action was hallmarked by restrained trading ahead of the U.S. Employment Situation Report. Futures jumped to pre-market highs following the announcement that nonfarm payrolls increased by 292k (Briefing.com consensus 200,000), but this would prove short-lived, as the rest of the report was digested by the market. Issues regarding flat wage growth (Briefing.com consensus 0.2%) and a static 9.9% U6 unemployment rate (which accounts for the unemployed, underemployed, and marginally attached workers) dulled the effects of the initial positive number.

The major averages gapped up to begin their day but were unable to find support at those prices levels. The market retreated from its early high alongside a drop in oil prices. Stocks were able to find some traction near mid-morning lows which resulted in a rally into positive territory. This rally matched a similar move in crude, but the commodity was no better at holding those price levels as the markets was at holding its advance. WTI crude ended its pit session down 0.3% at $33.16/bbl. For the week, the energy component surrendered 10.0%.

On the leaderboard, financials (-1.6%), health care (-1.4%), energy (-1.3%), and consumer discretionary (-1.1%) rounded out the sectors while utilities (UNCH), telecom services (-0.5%), consumer staples (-0.8%), and technology (-0.8%) lead the pack.

The health care space was the only countercyclical sector that could not finish near the top of the leaderboard. In the sector, biotechnology showed relative weakness, with the industry group finishing behind the the broader sector. This was evidenced by the iShare Nasdaq Biotechnology ETF (IBB 302.20, -5.58) closing out its session lower by 1.8%. Elsewhere in the space, sector large-cap AbbVie (ABBV 55.65, -1.56) underperformed with a decline of 2.7%.

In the technology space, investors sought out the large-cap names Apple (AAPL 96.96, +0.51), Facebook (FB 97.33, -0.59), and Microsoft (MSFT 52.33, +0.16). The three were some of the top-performers in the sector with respective performances of +0.5%, -0.6%, and +0.3%. Elsewhere, the high-beta chip makers struggled, evidenced by the PHLX Semiconductor Index sliding 1.6%.

In Treasuries, the benchmark note ended its day on its high with the 10-yr yield falling four basis points to 2.11%.

Investor participation was well above average with more than a billion shares trading hands at the NYSE floor.

Economic data included Nonfarm Payrolls for December, whole sale inventories for November, and the Consumer Credit Report for November.

December nonfarm payrolls increased by 292,000 (Briefing.com consensus 200,000)

November nonfarm payrolls were revised to 252,000 from 211,000

October nonfarm payrolls were revised to 307,000 from 298,000

Private sector payrolls increased by 275,000 (Briefing.com consensus 194,000)

November private sector payrolls were revised to 240,000 from 197,000

October private sector payrolls were revised to 312,000 from 304,000

The Unemployment rate was 5.0% (Briefing.com consensus 5.0%) versus 5.0% in November

The U6 unemployment rate, which accounts for the total unemployed plus persons marginally attached to the labor force and the underemployed, was unchanged at 9.9%

Average hourly earnings were flat (Briefing.com consensus 0.2%) after increasing 0.2% in November

The average workweek was 34.5 hours (Briefing.com consensus 34.5) versus 34.5 hours in November

The labor force participation rate was 62.6% versus 62.5% in November

November Wholesale Inventories fell 0.3% while the Briefing.com consensus expected a decreased of 0.1%

Today's report followed last month's revised decrease of 0.3% (from -0.1%).

The inventories/sales ratio increased to 1.32 from 1.31 in October.

November consumer credit showed an increased of $13.95 billion (Briefing.com consensus $18.50 billion)

Prior months growth was revised down to $15.61 billion from $15.98 billion.

Investors will not receive any economic data of note on Monday.

Russell 2000 -7.8% YTD

Nasdaq -7.3% YTD

Dow Jones Industrial Average -6.2% YTD

S&P 500 -6.0% YTD

Week in Review: Global Equities Greet 2016 with Synchronized Dive

The first week of 2016 was not particularly kind to the stock market as global equity indices careened lower to begin the New Year. The S&P 500 tumbled 4.9% through Thursday, representing the worst four-day start to the year in the history of the index. Things did not improve much on Friday as stocks surrendered their opening gains, going out on their lows with the S&P 500 falling 6.0% for the week while the Nasdaq (-7.3%) underperformed.

While the S&P 500 clearly struggled to start the year, other global equity markets had an even more difficult time as China's CSI 300 index plunged 9.9% during a week that featured two early closures after the index declined 7.0%, tripping its circuit breakers. The second instance took place on Thursday, ending the session before the opening hour was up. As a result, Chinese officials removed the circuit breaker mechanism after implementing it at the beginning of the week.

The volatility in Chinese (and global) equities occurred as the People's Bank of China took almost daily steps to devalue the yuan with Thursday's move pushing the currency to a five-year low against the dollar at 6.5646. On Thursday afternoon, Reuters reported that PBoC advisers have voiced support for devaluing the yuan by as much as 15.0% against the dollar, which added to the worries that deflationary pressures may be exported from China to other economies.

The resulting growth concerns manifested themselves through continued weakness in oil prices as WTI crude surrendered 10.8% for the week, settling at its lowest level since December 2008. To be fair, there was a pocket of strength in the commodity space as gold futures rallied 3.5% to $1,097.50/ozt.

Back in the U.S., the Friday session saw a morning rebound after the December Employment Situation report (292K; Briefing.com consensus 200K) beat estimates, but the headline reading masked the lack of wage growth in December (Briefing.com consensus +0.2%). The combination of strong headline payroll growth and nonexistent wage growth gave market participants some hope that the Federal Reserve's rate hike path may be even more gradual than first thought; however, San Francisco Fed President John Williams appeared on CNBC in the early afternoon, suggesting that four rate hikes in 2016 may still be appropriate. Mr. Williams is not a voting member this year, but the market retreated after his comments nonetheless.

All ten sectors ended the first week of 2016 in the red. The utilities sector shed just 0.4% while other countercyclical groups like consumer staples, telecom services, and health care posted respective weekly losses of 2.9%, 3.0%, and 5.6%. On the cyclical side, energy and materials lost 6.8% and 7.8%, respectively, while the consumer discretionary sector outperformed, falling 5.9%.