US equity markets shrugged off Wednesday’s post FOMC dip to stage a modest recovery on Thursday, the second to last trading day of the month. All three major market indices staged a rally on mixed earnings-centric volume with the help of a resurgent crude (+2.7%) . The Dow Industrials (+0.8%), S&P (+0.07%) and NASDAQ (+0.09%) recovered much of the ground lost on Wednesday afternoon as a result.
On December 31 2015 the S&P 500 closed at 2042.95. At mid month, on January 15th, the S&P 500 closed at 1880.33. In that two week period the most closely watched US equity index lost 162 points or 7.9%. Since that point the S&P 500 has traded from 1880 to 1893, as of yesterday’s close, for a gain of 13 points or 0.6%. My point being that though we started off the year, as measured by the first two weeks of trading, with a major deficit, since then markets have stabilized. Factually all of the year to date loses on an index level came in the first two weeks of trading. That is important data point to keep in mid when reviewing the first full month of trading over the weekend.
On December 31, 2015 the cost of a barrel of WTI crude was $37.04. At the mid month mark, WTI crude had fallen to $29.42 for a two week loss of 20.57%. Since that point WTI crude has risen to $33.51/bbl., as of yesterday’s New York close, for a gain of $4.09/bbl or 13.90%. Again worth considering in reviewing the year-to-date landscape.
It is almost as if one could break the month of January down into two distinctly separate buckets. One was driven by extreme fear fueled by crude’s meltdown, China’s equity market swoon and a resultant drop by nearly 8% in US equity valuations. The other was provided relief in the form of US economic data, earnings and yielded a degree of stabilization in equity prices. Though the gut wrenching drama associated with the year’s start has waned over the past two weeks, it clearly does reside in the psychology of those looking at their portfolio values.
The year-to-date performances of all three major US equity market indices, stabilization aside, does speak to a rather sobering start for 2016. The Dow Industrials (-7.67%), S&P 500 (-7.26%) and NASDAQ (-9.96%) are off to their worst start in years. However, if we continue to see US equity markets decouple from Chinese panic ridden meltdowns, and if we continue to see a degree of stabilization in the crude market, and if we continue to see cheap gas, high levels of consumer confidence, employment gains, strength in the housing market and modest economic expansion, we may have a run at regaining some of the ground lost at the outset of the year. I know, a lot of “ifs” but that is what it will take for markets to reverse course in February.