The Week In Review

2/12/16

The stock market ended its week in upbeat fashion, with the major indices recouping large portions of their weekly losses. As a result, the Dow Jones Industrial Average cut its loss to 231 points (-1.4%) from last Friday's close while the S&P surrendered 15 points (-0.8%) over that same period. Today's trade saw a higher tolerance for risk investments as the beleaguered financial sector (+4.0%) and oil were able to lead the market higher while a positive reading from January's Retail Sales report boosted investor sentiment.

Yesterday's chatter regarding OPEC members being ready to cooperate on production cuts gained traction overnight as oil lifted in overseas trade. The energy component was able to maintain this momentum in our session and managed a 12.2% pop to close at $29.33/bbl. Short covering likely provided additional fuel to this rally, but despite this impressive run, WTI crude ended its week down 5.0%.

European indices were able to get a reprieve from recent sharp selling action after better than feared earnings results from Commerzbank lifted their financial sector. This positive sentiment was echoed by Deutsche Bank (DB 17.38, +1.87), which announced that it will buy back more than $5 billion worth of its senior debt.

The U.S. financial sector was able to build off this momentum, cutting this week's loss from 6.4% to 2.4%. The rebound was helped by news from JPMorgan Chase (JPM 57.49, +4.42) indicating that CEO Jamie Dimon purchased 500,000 more shares of JPM for roughly $26 million. Other money center banks also rallied in the financial sector with JPMorgan Chase ending the week virtually flat (57.75).

Commodity-sensitive materials (+2.9%) and energy sectors (2.6%) were able to follow financials on the leaderboard with energy being the main beneficiary from the upswing in oil. Independent oil and gas companies benefited the most while Dow component Chevron (CVX 85.43, +2.44) finished in-line with the energy sector.

The heavily-weighted technology (+1.4%) and health care spaces (+1.4%) followed telecom services (+1.2%) and utilities (-0.3%) on the bottom of the leaderboard as large-cap constituents underperformed. To that point, Facebook (FB 102.01, +0.10) and Alphabet (GOOGL 706.89, +0.53) ended the session near their flat lines while Johnson & Johnson (JNJ 101.82, +0.12) and Merck & Co. (MRK 49.03, +0.18) also finished little changed.

Today's rally in equities took a toll on safe-havens with gold and Treasuries retreating. Gold surrendered 0.6% to end its pit session at $1,239.40/ozt while selling in the 10-yr note sent its yield higher by nine basis points to 1.75%.

The positive retail sales report contributed to a rally in the dollar, which advanced against the yen and euro. The dollar/yen pair ended at 113.25 (+0.9%) while the euro slid 0.5% against the dollar to 1.1256.

Today's participation was heavier than the recent average with 1.12 billion shares changing hands ahead of the extended weekend.

Today's economic data included the Retail Sales report for January, the December Business Inventory Report, and the preliminary reading of the Michigan Sentiment Index for February:

Total retail sales increased 0.2% in January (Briefing.com consensus +0.2%) while sales, excluding autos, increased 0.1% (Briefing.com consensus 0.0%).

The January gains were logged on top of an upwardly revised 0.2% increase (from -0.1%) for total sales in December and a 0.1% increase for sales, excluding autos, which were previously reported to be down 0.1%.

The only other retail areas experiencing sales declines in January were furniture and home furnishing stores (-0.5%), sporting goods, hobby, book, and music stores (-2.1%), department stores (-0.8%), and food services and drinking places (-0.5%).Those declines, it should be noted, followed on the heels of decent-sized sales gains in December.

While this report doesn't capture any spending on services, which account for two-thirds of consumer spending, it does offer some encouraging data on goods spending.

Core retail sales, which exclude auto, gasoline station, and building material sales, were up 0.4% in January after being flat in December. This will factor favorably in the goods component for personal consumption expenditures in the first quarter GDP report.

U.S. import prices in January declined 1.1% for the second consecutive month, driven primarily by lower fuel prices.

Excluding fuel, import prices declined 0.2%. Export prices fell 0.8% in January, continuing a streak of declines that stretches back to June 2015. Excluding agriculture, export prices also declined 0.8%. Excluding fuel, import prices are down 2.9% year-over-year. Excluding agriculture, export prices are down 5.0% year-over-year.

Import fuel prices declined 12.4% in January after an 8.7% decline in December. The January decline was the largest since a 12.7% decline in August 2015. Prices for overall fuel have declined 34.5% over the past 12 months, after decreasing 43.8% between January 2014 and January 2015.

Prices for export capital goods fell 0.1%, leaving them down 0.7% year-over-year, which was the largest 12-month decrease since January 2004.

The latest installment of import price data doesn't do much in terms of supporting tighter monetary policy. Then again, the Fed remains convinced the forces driving down prices are transitory. On that note, there hasn't been a monthly advance in the nonfuel import price index since March 2014.

Total business inventories increased 0.1% in December, as expected, following an upwardly revised revised 0.1% decrease (from -0.2%) in November.

Manufacturer inventories (+0.2%) and merchant wholesaler inventories (-0.1%) were already known. Retailer inventories were the only unknown and they increased 0.4% in December on top of a 0.3% increase in November.

The total business inventory-to-sales ratio pushed up a notch to 1.39 from 1.38 in November. In December 2015 the ratio stood at 1.33.

The University of Michigan Consumer Sentiment Index slipped to 90.7 in the preliminary reading for February from the final reading of 92.0 for January (Briefing.com consensus 92.7).

The downturn in February was driven by a dip in both the Index for Current Economic Conditions (to 105.8 from 106.4) and the Index of Consumer Expectations (to 81.0 from 82.7).

Strikingly, it was also noted that consumers anticipated the lowest long-term inflation rate (2.4%) since the question was first asked in the late 1970s.

The market will be closed on Monday in observance of Presidents Day. Tuesday's economic data includes the 8:30 ET release of the Empire Manufacturing Report (Briefing.com consensus -9.9) for February. Meanwhile, the NAHB Housing Market Index for February (Briefing.com consensus 60) and December's Net Long-Term TIC Flows will cross the wires at 10:00 ET and 16:00 ET, respectively.

Russell 2000 -14.4% YTD

Nasdaq -13.4% YTD

S&P 500 -8.8% YTD

Dow Jones -8.3% YTD

Week in Review: Pressure Persists

The past week featured another weak showing from the equity market with the S&P 500 surrendering 0.8%. The benchmark index was down 2.3% going into Friday, but a broad-based 2.0% surge helped the S&P 500 narrow its weekly loss.

The S&P 500 ended the week ahead of the Dow Jones Industrial Average, which fell 1.4%, while equity markets across the world had a similar showing to U.S. stocks. Japan's Nikkei faced particularly heavy selling that sent the index lower by 11.1% in just four sessions. That weakness coincided with noteworthy yen strength as the Japanese currency extended its aggressive advance that began the day after the Bank of Japan's decision to implement negative rates. The dollar/yen pair fell more than 350 pips to 113.25 from 116.85 after being down 600 pips on Thursday.

The unwavering yen strength indicated the presence of caution in the foreign exchange market while gold and bonds also advanced, benefitting from the defensive sentiment across financial markets. Gold futures rocketed into the $1,250 area, ending the week higher by 7.1% at $1239.40/ozt. For its part, the 10-yr note hit a three-year high on Thursday, which lowered its yield to 1.57%. Friday selling in the 10-yr note ran the benchmark yield to 1.75%, representing a ten basis point decline for the week.

With safe-haven assets on the rise, crude oil struggled mightily, setting a fresh 2016 low at $26.05/bbl on Thursday, but a Friday rebound lifted the energy component to $29.44/bbl, representing a 4.7% decline for the week.

For the most part, the selling that defined the week's action was tied to persistent growth concerns. The financial sector (-2.4%) was among the weakest performers, ending only ahead of utilities (-2.5%). The financial sector widened its 2016 loss to 14.4% partly due to an ongoing adjustment in the market's rate hike expectations. Furthermore, growing worries about the exposure of major financials to the battered commodity sector have also taken a toll on the economically-sensitive group. Deutsche Bank was in the spotlight last week as the stock set a 30-year low with investors showing concern over the bank's derivative exposure.

Similar to financials, eight of the remaining nine sectors registered losses for the week while the consumer staples sector ended the week higher by 0.8%.