SQUAWK BOX WEEKLY UPDATE – 10/05/15

Markets Performance / Current Trading Range

  • It was another volatile week on Wall Street this past week, with the S&P 500 trading between a nearly 80 point range (over 530 points for the DOW).
  • The S&P 500 closed out 3Q on Wednesday (down 6.9% for the quarter – worst quarter since 2011), but finished the week in the green for the first time in three weeks, rising +1% from 1,931 on Friday 9/25, to 1,951 on Friday, October 2.
  • Today (Monday 10/5), the benchmark index gained another 36 points (or +1.8%) to close at 1,987.
    • Today marked the fifth up day in a row for the S&P 500, its longest win streak all year.
  • While risk-on returned in equities to cap off the week, traders are beginning to seek safe havens in different industry segments and asset classes that are worth noting:
    • Utilities industry sector
    • Treasury market
    • Commodities – deflationary/inflationary forces

Recent Trading History

  • Continuing on the technical front, it has become increasingly clear that the former support levels for the S&P 500 (1,980-2,000) from late 2014/early 2015, are now acting as strong resistance for the market, as the benchmark index has failed on several occasions since late August to push above this key threshold – not to mention, still trading below the all-important 200-day moving average.
  • The S&P 500 was range-bound (nearly 100 point range) for roughly three months (May-July), trading sideways between 2,040 and near record territory of 2,120, before falling convincingly below the 200-day moving average in late August.
  • Volatility has increased since late August, as the S&P 500 dropped as much as -12% to a recent low of 1,867 (level last seen in October of 2014).
    • 500-1,000 point intraday swings are once again occurring on a more regular basis.

Market Drivers (*Level of Importance/Weight in Descending Order/Bold Discussed in Audio Podcast)

SHORT-TERM (ST) DRIVERS:

  1. Federal Reserve’s Interest Rate Hike
  2. Continuation of Risk-On/Risk-Off
  3. Chinese Economy Slowing / Market Turmoil

 LONG-TERM (LT) DRIVERS:

  1. Economic Data
  2. Corporate Earnings
  3. Currency Wars
  4. Global Debt Levels
  5. Geopolitics and Terrorism

Major Events on the Horizon

  • Once again, we have multiple FED officials speaking this week, with traders again listening in for the timing of a potential rate hike:
    • FOMC Member John Williams Speaks both Tuesday and Thursday.
    • On Friday, we’ll hear from Dennis Lockhart and Charlie Evans.
    • Also, we’ll have the FOMC minutes from September’s meeting coming out on Thursday.
  • FOMC Decision on Interest Rates
    • October 27-28
    • December 16 (with Press Conference)
  • China has been closed for the past week for National Holidays – on Wednesday (10/7) Chinese markets will reopen.
  • Earnings season beginning in full force next week, but this week we’ll hear from PepsiCo, YumBrands, Monsanto, and Alcoa.

 Glossary:

Reflationary Trade – Reflation is the act of stimulating the economy by increasing the money supply or by reducing taxes, seeking to bring the economy (specifically price level) back up to the long-term trend, following a dip in the business cycle (Wikipedia, 2015). If the Fed goes back to stimulus instead of raising rates, we could see a reflationary trade begin again, as the dollar sells off, and commodities and equities rise. This, of course, will be in the face of major deflationary global forces.

 

References:

Alloway, T., Keene, T., McKee, M. (2015). Copper, Junk Bonds: What’s Moving Markets. Bloomberg:

http://www.bloomberg.com/news/videos/2015-09-30/copper-junk-bonds-what-s-moving-markets

Alpher, Stephen. (2015). Atlanta Fed GDP tracker tumbles. Seeking Alpha: http://seekingalpha.com/news/2807086-atlanta-fed-gdp-tracker-tumbles

Armstrong, Martin. (2015). Today’s Turning Point on the ECM. Armstrong Economics: http://www.armstrongeconomics.com/archives/37591

Bartash, Jeffry. (2015). U.S. hourly wages flat in September, up 2.2% in past year. MarketWatch: http://www.marketwatch.com/story/us-hourly-wages-flat-in-september-up-22-in-past-year-2015-10-02

Burger, Dani. (2015). Bad August, Worse October Is Nothing New for U.S. Equity Routs. Bloomberg: http://www.bloomberg.com/news/articles/2015-09-30/bad-august-worse-october-is-nothing-new-for-u-s-equity-routs

Cashin, Art. (2015). Cashin: This is not going to be a pleasant Christmas. CNBC: http://www.cnbc.com/2015/10/02/cashin-this-is-not-going-to-be-a-pleasant-christmas.html

DiChristopher, Tom. (2015). Big layoffs may signal end of expansion: Challenger. CNBC: http://www.cnbc.com/2015/10/01/us-layoffs-surge-43-in-sept-to-58877-challenger.html

Durden, Tyler. (2015). Another Regional Fed Survey Collapses – ISM Milwaukee Crashes To 2009 Lows. Zero Hedge: http://www.zerohedge.com/news/2015-09-30/another-regional-fed-survey-collapses-ism-milwaukee-crashes-2009-lows

Durden, Tyler. (2015). If You Work Here, Quit Before You Are Fired: The 20 Largest US Layoff Announcements Of 2015. Zero Hedge: http://www.zerohedge.com/news/2015-10-01/if-you-work-here-quit-you-are-fired-20-largest-us-layoff-announcements-2015

Durden, Tyler. (2015). Nothing Happening Everything Awesome Crowd. Zero Hedge:

http://www.zerohedge.com/news/2015-09-30/nothing-happening-everything-awesome-crowd

Durden, Tyler. (2015). Stocks, Commodities Surge On ‘QE4 Hope’ After Chicago PMI Collapse. Zero Hedge: http://www.zerohedge.com/news/2015-09-30/stocks-commodities-surge-qe4-hope-after-chicago-pmi-collapse

Gillespie, Patrick. (2015). In setback, U.S. adds only 142,000 jobs. CNN Money: http://money.cnn.com/2015/10/02/news/economy/us-economy-september-jobs/index.html?section=money_markets

Kawa, Luke. (2015). Citi: The Fed May Have Kept Policy too Loose Because of Faulty Data. Bloomberg:

http://www.bloomberg.com/news/articles/2015-09-30/citi-the-fed-may-have-kept-policy-too-loose-over-the-past-four-years-because-of-faulty-data

Kelly, Lorcan R. (2015). Bond Markets Probably Aren’t Telling the Fed Much About Inflation Expectations. Bloomberg: http://www.bloomberg.com/news/articles/2015-09-30/bond-markets-probably-aren-t-telling-the-fed-much-about-inflation-expectations

Oyedele, Akin. (2015). MIDWEST FLOP: CHICAGO PMI SIGNALS CONTRACTION. Business Insider: http://www.businessinsider.com/here-comes-chicago-pmi-2015-9

Schiff, Peter. (2015). Sept. Jobs Report Confirms Weakening Labor Market. https://www.youtube.com/watch?v=aVp8fJaQS-M

Speciale, Alessandro. (2015). ECB Said to Plan Fed-Style Rules in Shakeup After Coeure Speech. Bloomberg: http://www.bloomberg.com/news/articles/2015-09-30/ecb-said-to-plan-fed-style-rules-in-shakeup-after-coeure-speech

US GDP Growth Rate by Quarter: http://www.multpl.com/us-gdp-growth-rate/table/by-quarter

Varney, Stuart (2015). Dent: This is just first wave down for markets. Fox Business:

http://www.foxbusiness.com/on-air/varney-co/index.html#/v/4518284607001

One comment

  1. Rick Majos · · Reply

    Nice Job. You are hitting your stride. Uncle Rick

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