Daily Market Update -January 14, 2016 (7:30 AM)
With people looking for something resembling a capitulation, yesterday wasn’t that day, despite a nearly 400 point loss.
Yesterday deteriorated quickly as oil continued its steep decline.
While there’s absolutely no reason to equate any part of that decline with an economic slowdown in the United States, it hasn’t mattered to investors, who are still struggling to understand this new paradigm,
Everyone has always understood that a portion of the S&P 500 would go lower as the energy sector was being hammered, but the traditional market has always looked at a weaker energy sector as being a big positive for the market, so long as weaker energy wasn’t related to weaker demand.
At least in the US demand isn’t weaker, but while we may still be the #1 economy in the world, our role is a smaller and smaller component of the pie.
Still, looking at worldwide economies and worldwide stock markets, historically, the US stock market would have been a place of refuge for overseas money at times like this and would have supported our own markets, even in the face of broader weakness.
None of those things is happening and 2016 just keeps getting worse and worse.
This morning’s futures aren’t showing any respite, but the first important S&P 500 company, JP Morgan reported earnings this morning and could be a key to giving investors a reason to consider buying, instead of what they’ve been doing all through the early days of 2016.
The financial sector, along with everything else took it on the chin yesterday, performing even worse than the S&P 500, which was down 2.5%.
JP Morgan’s earnings report this morning was a significant beat on the top and bottom lines, so there’s some hope, but the broader market doesn’t necessarily follow the financial sector higher, although it does often follow it lower during earnings season.
It’s hard to know whether traders are now going to be even more nervous as earnings are released, especially since the expectations have already been low, or whether they may see some value.
Much of that may depend on what the companies themselves see as their future, as they will start providing guidance.
It’s hard, though, to imagine any company giving anything resembling optimistic guidance, if only to protect themselves from even more disappointment when the April earnings season is getting ready to begin.
Seeing some of the losses being sustained by some of the most prominent hedge funds is an indication of just how unexpected some of the recent moves have been.
Whether its Bill Ackman or Carl Icahn, there have been some really high profile examples of mi-reading both the market and individual stocks, just like most everyone else.
In a small way, that’s encouraging, if only to think that a downward market is an equal opportunity offender and that the biggest of investors don’t always have the kind of advantage, that many think they unfairly possess.
I don’t really care about those things. I just want to have a chance to generate some income from my holdings and that is getting more difficult.
At some point, however, the volatility may start making it more reasonable to start again thinking about making some of those “DOH” call sales by using “Deep in the Hole” strike prices in an effort to start amassing some premium and chipping away at those mounting paper losses.