Daily Market Update -January 21, 2016 (7:30 AM)
There was an impressive 300 point gain yesterday, but unfortunately it followed a 550 point loss earlier in the trading session.
So the day finally ended being about 250 points lower.
If you’re keeping track it is starting to feel like 2008 and 2009 when people didn’t want to keep track and reportedly weren’t even opening their brokerage statement mailings each month.
If you are keeping track it’s really amazing that after nearly 3 weeks of trading in 2016 every single DJIA and NASDAQ 100 stock is lower on the year.
For its part Japan’s Nikkei Index is in bear correction territory and I don’t even know if there’s a word to describe the Chinese markets.
Meanwhile, the S&P 500 is down 10% on the year and is now about 14% below its all time high and about 12% below its December high.
The turn of economic events hasn’t really been an issue, at least not in the United States as a reason to account for what it is that we’re seeing.
Continued shock from China’s economy and its stock markets, together with oil just going lower and lower is a really potent combination, but US companies aren’t helping themselves with their earnings reports, so far.
The expectations were for lower earnings, but as those expectations have become reality, the response has still been surprise.
It’s difficult to compare favorably to the past few years when so many companies were buying up their own shares as their prices were going higher and higher. Without the same kind of purchasing not only will EPS reports not move any higher as the share float decreases, but also there isn’t an underlying support mechanism for price with corporate buying drying up.
Just as in 2008 and 2009, just when you would think that it would make sense for companies to start buying up their shares when they were relatively cheap, the money has often been used up in buying sprees at just the wrong time.
So that catalyst is gone for now and it looks like earnings won’t be that catalyst either.
At the moment it looks hard to identify what would lead price higher, much less substantively higher.
With China and oil leading the way down, unless they reverse course, they would still be a potent offset to anything that could sent markets higher.
People had for years been saying that the growth being reported in China was illusory, with lots of growth coming from infrastructure projects, such as building new cities, that had no possibility of ever becoming productive in their own rights.
So it may be a while before China becomes a positive for US markets unless some real tangible consumer led growth starts coming to life.
Oil, on the other hand, while still a supply and demand driven commodity, briefly showed some life a couple of weeks ago, when for a few hours it spiked as there were rumors of potential Saudi and Iranian conflict.
That may be what it takes for oil to get going again in any meaningful kind of way.
So 2016 may be a very long and frustrating year ahead and if Larry Fink is correct and employment rates drop, it will be a tumultuous year all around.