SQUAWK BOX WEEKLY UPDATE – 11/02/15

Markets Performance / Current Trading Range

  • We’ve now seen five consecutive weeks of gains for the markets, with the S&P 500 gaining another +0.2%, moving up to 2,079 on Friday, October 30 from 2,075 on Friday, October 23.
  • Interestingly, 4 out of the 5 days last week were actually down days – of course, with one big exception in Wednesday, where we got confirmation that interest rates will remain at zero once again.
    • We closed out the notoriously tough month of October in great shape, with a broad global rally in equities – Japanese Nikkei up nearly +10%, Germany’s DAX up +12%, and the S&P 500 up +8.3%.
  • In today’s Monday trading, we kept the momentum going, as we added another 25 points or 1.2% to our benchmark index, putting the S&P 500 towards the upper end of the record territory 100-point range (2,020 – 2,120).
  • More importantly, we’re now only 27 points away from the all-time record high of 2,131 reached back in May.
  • While a bulk of this sustained move higher has undoubtedly been short covering, the rally we’ve seen has been very impressive nonetheless – and interestingly has been led by some surprising sectors:
    • Leading the rally and outperforming over these past five positive weeks: Basic Materials +16%, Energy up +14%, Technology up +13%, Consumer Discretionary up +12%.
    • The 12 months that preceded this 5-week rally were led by Consumer Discretionary, Consumer Staples, Utilities, and Healthcare.
  • Since the recent low of 1,868 on August 25, the overall S&P 500 is up nearly 13%, now with Utilities, Consumer Staples, and Financials underperforming. It is certainly interesting that Energy and Materials are leading markets higher as they’ve continued to show the weakest 3Q earnings. Perhaps, on a more concerning front, the smaller-cap Russell 2000 index has really lagged this past month which could be a proxy for slowing U.S. growth, not to mention the fact that it was smaller-cap stocks that outperformed from 2009-2014.

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 image to enlarge:

spx_11.2.15

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

  • More than 100 companies in the S&P 500 are scheduled to announce earnings this week, with a bulk of the attention on media giants including Walt Disney, 21st Century Fox, Time Warner, CBS and Discovery Communications.
  • The biggest event of the week will be the October employment report, scheduled for Friday morning before the open.
  • FOMC Decision on Interest Rates.
    • December 16 (with Press Conference)
    • Many Fed officials will be speaking throughout the week, most notably Fed Chair Janet Yellen, Vice Chair Stanley Fischer, and New York Fed President William Dudley.
  • Other central banks will be in the headlines this week, as we’ll hear from the Reserve Bank of Australia Tuesday, in which some expect a rate cut, and on Thursday, we’ll hear from the Bank of England where we’ll get a look at their minutes, quarterly rate decision, and inflation report.

Glossary:

n/a

References:

Bartash, Jeffry. (2015). Strong jobs report could trigger Fed rate increase. Market Watch:  http://www.marketwatch.com/story/job-creation-in-cross-hairs-with-fed-rate-increase-looming-2015-11-01

Billner, Amanda. (2015). 700 Years of Swedish Prices Contrast Plague With Globalization. Bloomberg; http://www.bloomberg.com/news/articles/2015-10-29/700-years-of-data-gives-backing-to-swedish-inflation-battle

Board of Governors of the Federal Reserve System. (2015). Press Release: October 28, 2015: http://www.federalreserve.gov/newsevents/press/monetary/20151028a.htm

Cashin, Art. (2015). Cashin says: Hang on for the final hour today. CNBC:  http://video.cnbc.com/gallery/?video=3000440164&play=1

Cashin, Art. (2015). Cashin says: Market can’t find it’s motivation. CNBC: http://video.cnbc.com/gallery/?video=3000439626

Chandra, Shobhana. (2015). Manufacturing in U.S. Stagnated in October on Weak Global Sales. Bloomberg: http://www.bloomberg.com/news/articles/2015-11-02/manufacturing-in-u-s-stagnated-in-october-on-weak-global-sales

Davidson, K., Sussman, A.L. (2015). Consumers Spend Less Amid Soft Wage Gains. The Wall Street Journal.

Driebusch, Corrie. (2015). Blue Chips Jump 8.5% in October. The Wall Street Journal.

Gayeski, Troy. (2015). The Fed’s Language Shift: Mapping Out the Next Move. Bloomberg: http://www.bloomberg.com/news/videos/2015-10-29/the-fed-s-latest-language-shift-mapping-out-the-next-move

Guilfoyle, Steven. (2015). Guilfoyle: Fed rate shockwaves & exciting earnings. Modern Wall Street: https://www.youtube.com/watch?v=4dg7SQ7U8Ew&list=PLa_QP0x5ICMWCVXmnuDrNWKIO4bceuSfc

Liesman, Steve. (2015). Weak GDP changing Fed thinking? CNBC: http://video.cnbc.com/gallery/?video=3000439870

Maloney, Mike. (2015). Fed Rates, QE, and a Cashless Society? Mike Maloney’s Daily News Brief. GoldSilver:  https://www.youtube.com/watch?v=kwD9wb9kEao&feature=youtu.be&a=

McCullough, Keith. (2015). Earnings Scorecard: Not Good. Hedgeye:  https://app.hedgeye.com/insights/47276-earnings-scorecard-not-good

McCullough, Keith. (2015). Recession Coming? McCullough and Hilsenrath Square Off. Hedgeye: https://app.hedgeye.com/insights/47282-recession-coming-mccullough-and-hilsenrath-square-off-on-fox-business

Middleton, Reggie. (2015). Big Problems Brewing in Europe’s Largest Bank. You Tube:  https://www.youtube.com/watch?v=i2q0Xus2IE8&feature=youtu.be

Rickards, James. (2015). Jim Rickards: Recession will force Fed to ease in 2016. Modern Wall Street:  https://www.youtube.com/watch?v=QC2FsN6olxo&list=PLa_QP0x5ICMWCVXmnuDrNWKIO4bceuSfc&index=2

Rickards, James. (2015). You Can Sleep in This Friday. West Shore Funds:  www.westshorefunds.com

Reuters. (2015). Deutsche Bank cutting 15,000 jobs as new CEO sets out strategy plan. Yahoo! Finance: http://finance.yahoo.com/news/deutsche-bank-q3-trading-gains-082342510.html?l=1

Schiff, Peter. (2015). Ep. 115: Fed Continues To Extend And Pretend On Rate Hikes. Schiff Radio: https://www.youtube.com/watch?v=FN_a-AOmYJY

Shedlock, Mike. (2015). Regional Fed Reports Five for Five in Contraction; Texas Region Worsening, Richmond Negative Again. Mish’s Global Economic Trend Analysis: http://globaleconomicanalysis.blogspot.com/2015/10/regional-fed-reports-five-for-five-in.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29

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