From Friday (1/15) morning’s note:
In short, earnings and crude did do the heavy lifting yesterday allowing markets to regain some of the ground lost on Wednesday (1/13). Perspective matters however. We will need to see additional stability in crude pricing and the continued support of better than expected earnings if this attempt at a meaningful rally (in reference to Thursday’s 1/14 trade higher) has any legs. Markets remain in correction.
We saw anything but additional stability in crude pricing and Q4 results have been mixed thus far.
As a result, equity markets fell apart in an unseemly rush for the exits ahead of the Martin Luther King Jr. holiday weekend. Rather than pick apart Friday’s meltdown this morning, I will transition on to what has happened in overseas markets while US markets were closed on Monday for the Martin Luther King Jr holiday.
Unfortunately, for investors in US equity markets, there was not a meaningful shift in the dire narrative that has confounded equities thus far in 2016. In fact, crude WTI traded to a new low in the overnight of $28.81/bbl before ticking back above $30.00/bbl. I suspect more significant was the Chinese economic data released in the overnight. Bloomberg News put it this way last night:
“China’s economy slowed in December, capping the weakest quarter of growth since the 2009 global recession, as the Communist leadership struggles to manage a transition to consumer-led expansion…
Industrial production, retail sales and fixed-asset investment all slowed at the end of the year, while gross domestic product rose 6.8 percent in the fourth quarter from the same period of 2014. GDP increased 6.9 percent — the least since 1990 — for the full year, in line with the government’s target of about 7 percent.”
China-centric themes remain uniformly negative. Equity market volatility, the violent emergence of a bear market, uncertainty over yuan valuations and dampening expectations for a reversal of fortunes anytime soon, have all contributed to a narrative of global concern and risk-off.
US investors are hoping for a welcome distraction from China. Earnings season may provide that. Earnings season gets busy this week and as a result investors are likely to get a much more granular idea of how the corporate earnings landscape for Q4 2016 shaped up. Netflix, Goldman Sachs, American Express, Starbucks, General Electric and Schlumberger are all scheduled to release – along with roughly 30 other S&P 500 component companies.