Year of The Monkey

Equity investors took it on the chin again yesterday as familiar themes worked in concert to drive prices lower. And once again, the NASDAQ led all three major equity market indices lower by losing 1.82%. The S&P 500 lost 1.42% and the Dow Industrials gave back 1.10%. Volume on the NYSE (+16.98%) and NASDAQ (+9.4%) rose. Internals on the NYSE and NASDAQ were negative with losers outpacing winners by 4-1. The market outlook has reverted to correction.

Given the performances of global equity markets in Sunday’s overnight trading, yesterday’s performance was not unexpected – but that doesn’t take the sting out of it for bulls.

If your exposure to equity markets has a focus on cyber-security, technology, financials and/or a NASDAQ listing, you know what pain feels like. The financial sector (-3.35%) was the leader lower yesterday, by a wide margin, and cyber-security and technology stocks have been under pressure since August of last year. Both the industrial and consumer discretionary sectors also logged losses of greater than 2% yesterday. The increased likelihood of no additional move in rates at the March FOMC meeting has taken some transitional support away from the financial sector as a rising rate environment was expected to provide increased profit margins for financials. Adding additional pressure to the sector has been concern over growth, real estate valuations and energy exposure. All in these factors have been the principle reasons why the financials sector, last year’s darling, is this year’s dog. Just keep in mid, that markets tend to overshoot and that often times the wheat doesn’t get separated from the chaff until we reach an extreme oversold inflection point.

Interestingly, both China and crude WTI were not the forces directly behind yesterday’s move into correction territory by US equities. The move, though half as negative as it was on an intraday basis, was fueled by earnings and growing fear of not only an earnings recession but an economic one as well. The vote is divided on that front. Many, if not most, CEOs do not think a recession is on the horizon in the next twelve months, despite Q4’s relatively weak annualized GDP reading of 0.7%.

Yesterday’s Labor Market Conditions Index for January came in at 0.4 versus consensus expectations calling for 2.3. That was a big miss for the widely watched Federal Reserve data point. Today’s Economic Calendar begins early with the NFIB mall Business Optimism Index due out at 6:00 AM EST. Redbook at 8:55 AM EST, JOLTS at 10:00 AM EST and Wholesale Trade at 10:00 AM EST as well.

If you are in the market for some good news, consider the S&P 500’s return during Lunar New Years. The lunar New Year typically starts between mid-January and mid-February. Today welcomes the Year of the Monkey (Gung Hey Fat Choy). Since 1945, the S&P 500 gained an average 7.8% during the January-to-January period associated with the Year of the Monkey, and rose in price 100% of the time. Since so many people go ape over the Super Bowl Theory, investors may be equally intrigued by this similarly non-causational indicator that hints encouragingly that 2016 might not be so bad for stocks after all. ~ Sam Stovall

Flickr Photo: Mike Licht