The Variables That Dominated the Trading Week

The China narrative and the instability in WTI crude continued to drive the markets in a week that saw failed rally attempts and significant selloffs with violent swings in between. At the end of the week investors are left with more questions than answers.

There can be no argument that the trade lower in both crude, WTI & Brent, and the equally sharp trade lower in Chinese equities have provided the one-two punch that has US investors clamoring for air.

The same narrative provided temporary lift to the markets. When crude rallied it did the heavy lifting allowing markets to regain strength. When it dropped again, the efficiency of the selloffs was comprehensive, all major indices, all sectors, and nearly anything not nailed down was thrown over board. Despite encouraging trade news out of China and PBOC support, the 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 has any legs.


The complete and comprehensive thrashing on top of last week’s historic rout is a real concern. I have accurately called for volatility protection via the VIX.


US Economy to the rescue?

An additional driver of  equity market reversal came from Federal Reserve Richmond Bank President Jeffrey Lacker. In a talk given to a business group in Columbia, South Carolina, Mr. Lacker underscored the importance of understanding that the link between China’s economic hurdles and our current economic health are not as correlated as equity markets seem to be indicating. Again, a theme mentioned here. He went on to point out that the heightened volatility and sharp trading losses we have seen in China will not prevent the US economy from continuing to expand.

There was a sour note as the Weekly Jobless claims came in higher than expected. New Claims – Level were 284k versus expectations of 275k. however, the four-week Moving Average was 278.75 versus the prior reading of 275.75k. In other words, the longer term trend remains positive. Import and Export Prices were in line and as expected spoke to the deflationary impact of the current commodities spiral. The Bloomberg Consumer Comfort Index for the week ending 1/10 was 44.4 versus the previous 44.2.

Earnings in the driver seat?

Earnings provided a generally positive narrative for equities. JP Morgan released results beating consensus expectations on both top and bottom line. Profit jumped nearly 10% from a year earlier. Caution was underscored in relation to the ongoing crude meltdown. Intel released results as well, after the closing bell, beating consensus by a wide margin; 74 cents per share vs 63 cents expected. However, slowing data center revenue growth and guidance both undermined investor enthusiasm. During regular trading hours Intel moved higher by 2.60%, closing at 32.74. The net effect of Intel’s out performance led to the Technology sector posting a solid day. However, in the after hours, Intel reversed course shedding 4.70% in the process. Health Care, as a sector (+1.80%), posted the second best performance on the day as a result of institutional buying ahead of upcoming earnings releases. Celgene and Amgen logged gains on the day of nearly 5%.

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flickr photo: Horia Varlan