SQUAWK BOX WEEKLY UPDATE – 10/26/15

Markets Performance / Current Trading Range

  • The theme of the previous week’s tug-of-war market continued in full force Monday-Wednesday last week, making it a total of 9-straight fairly quiet days of tight trading (only 20-30 points) just north of that psychologically important 2,000 level.
    • On Thursday, however, we got a very dovish ECB announcement and comments from Mario Draghi about the possibility of more QE or stimulus in Europe, which sent equity markets surging and the benchmark index back into the record-territory trading range we witnessed take hold from March through mid-August (2,020 – 2,120).
  • Last week, the S&P 500 rose +2.1% (with a bulk of the move coming on Thursday and Friday), closing on Friday 10/23 at 2,075 up from 2,033 on 10/16.
  • With the markets able to post four consecutive weeks of gains now, the S&P 500 has broken above the most recent volatile trading channel that we’d been stuck in (1,870 – 2,020) since the -12% correction in late August.
  • Of course, as the markets have repaired much of its recent damage, we’re now again in positive territory for the year and in position of flirting with all-time highs (May’s record of 2,131).
  • With today’s essentially flat Monday trading, the S&P 500 is up roughly +11% from its recent low of 1,868 (from August 25), and is only about 60 points away its all-time high.

Recent Trading History

  • Continuing on the technical front, the S&P 500 has been able to push above key former support/current resistance levels of 2,020, most recently surging back above its 200-day moving average.
  • The S&P 500 had been recently trading in a range-bound (nearly 150-point range) for roughly two months (late August – mid October), trading sideways in volatile fashion between 1,870 and 2,020.
  • The S&P 500 was previously range-bound (roughly 100-point range) for roughly 5 ½ months (March-mid-August), trading sideways between 2,020 and near record territory of 2,120, before falling convincingly below the 200-day moving average in late August.
  • Volatility in late August and September soared as the S&P 500 dropped as much as -12% to a recent low of 1,867 (level last seen in October of 2014), however, the VIX (Volatility Index) has collapsed roughly -40% since the end of September as markets have grinded higher.

*Click on S&P chart to enlarge:

10.26.15

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. Corporate Earnings
  4. Chinese Economy Slowing / Market Turmoil

 LONG-TERM (LT) DRIVERS:

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

Major Events on the Horizon

  • The US earnings docket is quite heavy again this week with roughly 150 S&P 500 companies reporting – Apple, ExxonMobil, Chevron, ConocoPhillips, Pfizer, Merck, and Facebook making up some of the most important.
  • FOMC Decision on Interest Rates.
    • October 27-28
    • December 16 (with Press Conference)
  • U.S. 3Q GDP on Thursday.
  • President Xi will announce his 5-year plan for China.
  • On Friday, the Bank of Japan will decide whether it may expand its own QE program or asset purchases, which include exchange-traded funds, in addition to the traditional government bonds.

Glossary:

n/a

References:

Cashin, A., Chu, D. (2015). Cashin says GDP could be ‘swing factor’. CNBC:  http://video.cnbc.com/gallery/?video=3000438211&play=1

Durden, Tyler. (2015). Citi Expects Imminent Easing From Central Banks Of China, Australia, Japan And Europe. Zero Hedge:

http://www.zerohedge.com/news/2015-10-21/citi-expects-imminent-easing-central-banks-china-australia-japan-and-europe

Federal Reserve Bank of Atlanta. GDPNow: https://www.frbatlanta.org/cqer/research/gdpnow.aspx?panel=1

Ferro, J., Greeley, B., Schatzker, E. (2015). ECB’s Draghi Hints at Additional Stimulus in 2015. Bloomberg:  https://www.youtube.com/watch?v=cKEOPpzApp4

Francis, T., Linebaugh, K. (2015). U.S. Companies Warn of Slowing Economy. The Wall Street Journal: http://www.wsj.com/articles/u-s-companies-warn-of-slowing-economy-1445818298

Forsyth, Randall W. (2015). Global Realities May Stay Fed’s Hand on Rate Hike. Barron’s: http://www.barrons.com/articles/global-realities-may-stay-feds-hand-on-rate-hike-1445660813

Ismailidou, Ellie. (2015). Treasury yields fall ahead of ECB meeting, amid oil pullback. Market Watch: http://www.marketwatch.com/story/treasury-yields-fall-amid-global-central-bank-stimulus-expectations-2015-10-21?siteid=rss&rss=1

Ismail, Netty I. (2015). RBS Sees Japan Investors’ View on BOJ at Odds With U.K. Peers. Bloomberg: http://www.bloomberg.com/news/articles/2015-10-26/rbs-sees-japan-investors-view-on-boj-at-odds-with-u-k-peers

Kennedy, Simon. (2015). Central Bankers Bow to Market Pressure as Eyes Turn to Fed-BOJ. Bloomberg: http://www.bloomberg.com/news/articles/2015-10-26/central-bankers-bow-to-market-pressure-as-eyes-turn-to-fed-boj

McCullough, Keith. (2015). McCullough: Are We Entering An Earnings Recession? (And If So…). Hedgeye: https://app.hedgeye.com/insights/47006-mccullough-are-we-entering-an-earnings-recession-and-if-so

Rickards, Jim. (2015). Things Have Changed. West Shore Funds: http://www.westshorefunds.com/jim-rickards-report-blog/

Schiff, Peter. (2015). Ep. 114: ECB Opens The Door To More QE. Schiff Radio: https://www.youtube.com/watch?v=QZrGzBmH9uY

Shedlock, Mish. (2015). Sales, Earning Estimates Contract First Time Since 2009; US Back in Recession? Mish’s Global Economic Trend Analysis: http://globaleconomicanalysis.blogspot.com/2015/10/sales-earning-estimates-contract-first.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29

Torres, Craig. (2015). These Are the Fed’s Three Weapons If the Economy Falters. Bloomberg: http://www.bloomberg.com/news/articles/2015-10-21/these-are-the-fed-s-three-weapons-if-the-economy-falters

Zeng, Min. (2015). Betting Against a Fed Rate Rise. The Wall Street Journal: http://www.wsj.com/articles/betting-against-a-fed-rate-rise-1445790240

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