SQUAWK BOX WEEKLY UPDATE – 10/12/15

Markets Performance / Current Trading Range

  • We had an explosive week in the markets this past week, as the benchmark S&P 500 rose +3.3% from 1,951 on Friday, 10/2 to 2,015 on Friday, 10/11.
  • The S&P 500 is up roughly +8% or over 140 points from its recent support level lows of ~1,870 (last seen on 9/29 and 8/25), with the majority of this major move (~90 points or +5%) actually coming on the heels of the previous Friday’s jobs report.
  • While the U.S. markets surged on the week, it’s important to note several key points:
    • A short-squeeze was likely a major contributor to the markets moving higher.
    • Relative performance overseas was even more impressive.
      • The S&P 500 was actually the worst performer amongst other major world markets:
      • German DAX up +6%, French CAC 40 and UK FTSE up +5%, Hang Seng and Shanghai Composite up nearly +4.5%, and the Japanese Nikkei up +4%.
    • On the technical front, the S&P 500 has only returned to the upper end of its current trading channel (1,870 – 2,020).
  • Despite the global economic slowdown and deflationary headwinds, commodities also had another stellar week.
    • WTI crude oil back near $50/barrel
    • Explosive moves higher in: zinc, copper, aluminum, nickel, lead, silver, and gold
    • U.S. dollar at 3-week lows vs. the euro

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 (*currently testing resistance levels), 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

  • Earnings are in full-focus with much of the attention on the banking sector along with 36 S&P 500 companies due to report throughout the week.
  • FED officials will be speaking again throughout the week, as market participants continue to listen in for additional clarity on monetary policy direction.
  • FOMC Decision on Interest Rates
    • October 27-28
    • December 16 (with Press Conference)
  • It is a heavy economic data week (retail sales, PPI and CPI, initial jobless claims, Empire manufacturing, industrial production, and University of Michigan sentiment report, etc.)

Glossary:

  • Negative Interest Rates (NIRP) – A negative interest rate policy (NIRP) is an unconventional monetary policy tool whereby nominal target interest rates are set with a negative value, below the theoretical lower bound of zero percent (Investopedia, 2015). 
  • Short Squeeze – A situation in which a heavily shorted stock or commodity moves sharply higher, forcing more short sellers to close out their short positions and adding to the upward pressure on the stock (Investopedia, 2015).

References:

Bartiromo, Maria. (2015). Rickards: Fed is lousy at seeing bubbles, they never see them. Fox Business: http://video.foxbusiness.com/v/4539331788001/rickards-fed-is-lousy-at-seeing-bubbles-they-never-see-them/?playlist_id=3166411554001#sp=show-clips

Bartiromo, Maria. (2015). Time to invest despite lack of earnings growth? Fox Business:

http://video.foxbusiness.com/v/4535634023001/time-to-invest-despite-lack-of-earnings-growth/?sf13881119=1#sp=show-clips

Boesler, Matthew. (2015). Kocherlakota Says Fed Should Consider Negative Interest Rates. Bloomberg: http://www.bloomberg.com/news/articles/2015-10-08/kocherlakota-says-fed-should-consider-negative-interest-rates

Durden, Tyler. (2015). “It’s Not A Risk-On Rally, This Is The Biggest Short Squeeze In Years” Says Bank Of America. Zero Hedge: http://www.zerohedge.com/news/2015-10-09/its-not-risk-rally-biggest-short-squeeze-years-says-bank-america

Durden, Tyler. (2015). Stocks Soar To Best Week In A Year On “Mother Of All Short Squeezes”. Zero Hedge: http://www.zerohedge.com/news/2015-10-09/stocks-soar-best-week-year-mother-all-short-squeezes

Herron, J., Tilles, D. Global Stocks Post Best Week Since 2011 as Commodities Rally. Bloomberg: http://www.bloomberg.com/news/articles/2015-10-08/asian-futures-signal-more-stock-gains-to-come-with-oil-near-50

Icahn, Carl. (2015). Danger Ahead. http://carlicahn.com/

Kazuhiro, Kida. (2015). M&A Deals Hit Blistering Record Pace. Nikkei Asian Review: http://asia.nikkei.com/Business/Trends/M-A-deals-hit-blistering-record-pace

Mintz, S.L. (2015). Stock Buybacks Prepare for the Bear Market. Institutional Investor: http://www.institutionalinvestor.com/article/3495918/research-and-rankings/stock-buybacks-prepare-for-the-bear-market.html#.VhvGY_lVhBc

Orszag, Peter. (2015). Is the Global Economy Ready for Negative Policy Rates? Bloomberg: http://www.bloomberg.com/news/videos/2015-10-12/is-the-global-economy-ready-for-negative-policy-rates-

Pento, Michael. (2015). One Step Back from the Ledge, but Still Threatening to Jump. Pento Portfolio Strategies LLC: http://pentoport.com/blog/

Ro, Sam. (2015). Here’s your preview of this week’s big market-moving events. Business Insider: http://www.businessinsider.com/monday-scouting-report-oct-12-2015-2015-10

Robb, Greg. (2015). Fed officials seem ready to deploy negative rates in next crisis. Market Watch: http://www.marketwatch.com/story/fed-officials-seem-ready-to-deploy-negative-rates-in-next-crisis-2015-10-10

Schaefer, Steve. (2015). Why A $94 Billion Headwind To Corporate Earnings May Start Easing. Forbes: http://www.forbes.com/sites/steveschaefer/2015/10/09/why-a-94-billion-headwind-to-corporate-earnings-may-start-easing/

Schiff, Peter. (2015). Ep. 112: Fed Worried Cost of Living Not Rising Fast Enough: https://www.youtube.com/watch?v=iM0d7FXdbWo

Short Doug. (2015). World Markets Weekend Update: Best Week of 2015. Advisor Perspectives: http://www.advisorperspectives.com/dshort/updates/World-Market-Snapshot.php

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