US equity markets managed to stop the bleeding for a session by posting in a mixed performance yesterday. The Dow Industrials (+0.17%) and S&P 500 (+0.05%) both held their greatly diminished ground while the NASDAQ (-0.26%) slipped. Not unexpectedly, volume on the NYSE (-17.11%) and NASDAQ (-18.18%) contracted from Friday’s torrid pace. Internals were once again more negative than broader measures of performance might indicate. Losers swamped winners by a margin of 2-1 on both major exchanges.
Though not yielding any meaningful ground at the outset of the week does feel like a triumph of sorts for investors given the downdraft that has defined 2016 thus far, the fact is that markets barely managed to do even that. We opened with significant tailwinds due to the warm reception that China’s most recent GDP data and crude’s firming in overnight markets could muster. But that brief and unfamiliar dance with enthusiasm was short-lived. The NASDAQ went from + 1.4% after the opening bell to – 0.26% by the close. The S&P 500 and Dow Industrials followed a similar worrisome intraday trading pattern.
The lone piece of economic data released yesterday was inline with expectations. The Housing Market Index (NAHB) for January came in at 60, unchanged from December’s adjusted index reading. As with so many readings, above 50 is considered expansion, or in this case optimism, below 50 is contraction or pessimism. Bloomberg consensus was calling for 62 but considering that October’s 64 reading was the highest in over a decade, 60 was considered constructive.
Today’s Economic Calendar is a bit light, not unlike yesterday’s. Of the three releases scheduled for the day, the December Consumer Price Index and Housing Starts data, both out at 8:30 AM EST, will take top billing. Both will be viewed with an eye on inflation and through the lens of consumer behavior. The CPI M/M change is expected to be flat while Housing Starts – level – SAAR are expected to inch higher to 1.200M from 1.173M.
In summary, US equity markets will open in the red this morning. Clearly the momentum behind our 2016 trade remains lower. Earnings thus far have not provided a buffer to off-set the stampede for the exits. US economic data, though largely positive, has also not been sufficiently robust enough to change investor outlook. Global themes continue to re-enforce a sense of foreboding. In August of last year the NASDAQ closed at 4506.49. Yesterday the NASDAQ closed 29.54 points below that level at 4476.95. If markets are unable to find a justification to hold these levels, and there doesn’t seem to be a case for that at the moment, look for the next leg lower to be efficient and painful. As I suggested last week, the inability of markets to rally on Wednesday was a warning sign. My outlook immediately shifted from cautiously optimistic to cautiously pessimistic. Friday’s action coupled with yesterday’s inability to manage even a modest gain underscored my sense that the path of least resistance is lower.