SQUAWK BOX WEEKLY UPDATE – 11/16/15

Markets Performance / Current Trading Range

  • The markets fell in rather aggressive fashion for the first time in six weeks, with the S&P 500 falling sharply by -3.6% to 2,023 on Friday November 13, down from 2,099 on Friday, November 6.
  • The S&P 500 recently hit an intraday high of 2,116 on November 3rd, which equaled an incredible +13% move up from the relative low of 1,868 on August 25th.
  • However, with the hawkish rhetoric out of the Fed mixed with a fantastic jobs report for October, we quickly gave back 4 percentage points and dropped back into negative territory for the year by the end of last week.
  • All of this market movement is being completely overshadowed by the horrific terrorist attacks in Paris on Friday evening, where 129 people lost their lives in brutal fashion.
  • In stunning fashion, the benchmark S&P 500 index actually rallied in defiant fashion in Monday’s trading, gaining over 30 points or +1.5%, closing at 2,053.
  • All in all, the recent damage seems to be a bit contained at the moment, with the S&P 500 continuing to sit in its record territory 100-point trading range (2,020 – 2,120), and we’re still only roughly 80 points away from the all-time record high of 2,131 reached back in May.
  • It’s important to note that hawkish trading momentum continues and alarming deflationary pressures are still sweeping throughout broader markets:
    • Gold back below $1,100/ounce.
    • Zinc, lead, and copper all under pressure.
    • Crude oil back falling back to $40/barrel, but able to push back towards $42/barrel today.
    • Flight to quality on the heels of the Paris attacks, with money flows into the dollar and treasuries.

Recent Trading History

  • The S&P 500 continues to trade in its record territory 100-point trading range (2,020 – 2,120) despite briefly falling below its 200-day moving average and touching 2,019 in intraday trading on the heels of the Paris terrorist attacks.
  • 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 since the end of September as markets have grinded higher. A potentially rising VIX will be closely watched if selling continues on the prospect of an imminent rate hike and/or additional geopolitical risk events.

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. Geopolitics and Terrorism
  3. Currency Wars
  4. Global Debt Levels

Major Events on the Horizon

  • The G20 meetings in Turkey are in focus with attention on ISIS, border controls, and intelligence sharing. On the economic front, IMF recommended last week that the Chinese yuan be added to the SDR or Special Drawing Rights, which is a global basket of reserve currencies.
  • Earnings are coming to a close, but we still have 18 S&P 500 companies, mostly retailers reporting throughout the week, headlined: by Wal-Mart, Home Depot, Dick’s Sporting Goods, Target, Staples, Gap, L Brands, Best Buy, and Abercrombie & Fitch.
  • In economic data, we’ll get more color on the CPI and PPI this week, and how it compares to the Fed’s inflation target.
  • FOMC Decision on Interest Rates.
    • December 16 (with Press Conference)
    • This week, the FOMC Minutes will be released, which will shed light on the deliberations of Fed officials when they chose not to raise rates in October.
  • Bank of Japan will decide on monetary policy action next week.
  • European Central Bank will decide on monetary policy action on December 3.

Glossary:

n/a

References:

Ablan, Jennifer. (2015). DoubleLine’s Gundlach: Fed hike ‘no-go more likely than most people think’. Reuters: http://www.reuters.com/article/2015/11/15/us-doubleline-gundlach-idUSKCN0T417Z20151115?feedType=RSS&feedName=businessNews

Cashin, Art. (2015). Cashin: Fed may have missed window mightily. CNBC:  http://video.cnbc.com/gallery/?video=3000453467&play=1

Cashin, Art. (2015). Cashin: Partial flight to safety after Paris attacks. CNBC:  http://video.cnbc.com/gallery/?video=3000454607&play=1

Dom, Patti. (2015). Fed will not be deterred from hiking rates. CNBC:  http://www.cnbc.com/2015/11/16/fed-will-not-be-deterred-from-hiking-rates.html

Donaldson, Ali. (2015). A Record Share of Young American Women Are Living With Family. Bloomberg: http://www.bloomberg.com/news/articles/2015-11-11/a-record-share-of-young-american-women-are-living-with-family

Fry, Richard. (2015). Record share of young women are living with their parents, relative. Pew Research Center:  http://www.pewresearch.org/fact-tank/2015/11/11/record-share-of-young-women-are-living-with-their-parents-relatives./

Guilfoyle, Stephen. (2015). Retail Stocks Coming Alive Before Shopping Season Splurge. Modern Wall Street:  https://www.youtube.com/watch?v=lLnVseHyLo0&list=PLa_QP0x5ICMWCVXmnuDrNWKIO4bceuSfc&index=3

Randolf Herald. (2015). THE LIST: Six things to know about gas prices around the country. Randolf Wicked Local: http://randolph.wickedlocal.com/article/20151110/NEWS/151119500

Reynolds, G.C., Sano, N. (2015). Stocks Fall With Euro on Paris Attacks as Haven Trade Lifts Gold. Bloomberg:  http://www.bloomberg.com/news/articles/2015-11-15/euro-yen-may-rise-as-investors-seek-havens-after-paris-attacks

Schiff, Peter. (2015). Ep. 118: Did The Fed’s Luck Run Out On Friday The 13th? Schiff Radio:  https://www.youtube.com/watch?v=9vZudTzfFxM

Schiff, Peter. (20150. Ep. 117: Markets, Economy, Republican Debates. Schiff Radio:  https://www.youtube.com/watch?v=NCiiS-UlXMY

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