Will
the market bounce back from this ‘slow start’?
Ken’s
comments from CNBC 2/7/14:
On
January 2nd, the second trading day of this year,
on CNBC, I stated that investors were getting 'giddy', as if it
was their 'birth right' to make money in stocks. As we have learned, time
and time again, that is a dangerous place for the markets. It
also shows how quickly things change. We went from
'giddy' to 'now worried'.
There
are a number of crosscurrents that are affecting the markets,
including Fed taper, global markets and all the market
clichés.
The
January Effect/Barometer
AFC
team wins the Super Bowl
The
Ground Hog sees its shadow ... does that mean 6 more weeks of
a correction?
The
market works in extremes!
But, in
the end, I believe its something in the middle of giddiness and
worry and it's earnings that will ultimately win out.
Earnings
are expected to be 8-10% according to S&P and we can salvage this year with
that forecast.
What
we are seeing is normal in the market. With stock prices moving up,
almost parabolic, the past couple of years, you are going to get a correction
in prices at some point.
We
have seen a normal earnings season for the most part. Companies that had
good quarters and 'good' guidance saw their stocks go up. For
example, NFLX and FB. WE have seen some companies miss or guide
lower, like IBM and AAPL, and their stocks got hit.
Last
year we got lulled into these V shape rallies. The only correction we had
was around the Government Shutdown, and that was very shallow.
Going
forward with the Fed tapering process, we will have a new normal for stocks and
it won't be up 25-30% ... and that is what we are adjusting to.
Weekly
comments:
After several weeks of gloom,
Friday’s employment situation report delivered some mixed news. On the payroll side, total jobs rose just 113,000, missing expectations of an 181,000-job boost. On the other hand, November and December job creation numbers were revised upward, for a net increase of 34,000 new jobs. The unemployment rate slipped downward another notch to 6.6% and labor force participation rebounded sharply after dropping significantly in December. [ii]
The jobs report showed increased employment in construction and manufacturing, but declines in retail and government sectors. Despite some worries about slowdowns in factory activity,
As Q4 earnings season winds down, S&P 500 companies are on track to post earnings per share numbers nearly 10.0% higher while revenue is probably only going to be up 2.0% – 3.0%. While top line revenue numbers show that businesses are still struggling with demand, companies have delivered another quarter of strong bottom line results. [iv]
New Fed Chair Janet Yellen’s first testimony before Congress is the big event for markets in the week ahead as analysts pore over recent economic data to see if the softness in January’s jobs report is really just about the bad weather. Yellen will be giving her first semi-annual monetary policy testimony before the Senate Banking Committee and the House Financial Services Committee.
Most analysts don’t anticipate a lot of fireworks from Yellen’s testimony, but rather expect her to emphasize the importance of letting the economic data guide her policy decisions. Unlike many other Fed officials, Yellen hasn’t been an active part of the speaking circuit, meaning traders will be watching carefully for any surprises in her remarks. [v]
While
the latest employment numbers aren’t great, the six-month average is still
trending between 130,000-150,000 new jobs per month, and analysts don’t think
that the Fed will discontinue its tapering program. The Fed has cut back its
bond purchases twice and is now buying just $65 billion in bonds each month in
a program that’s expected to wind down before year’s end. [vi]
ECONOMIC CALENDAR:
Tuesday: Janet
Yellen Speaks 10:00 AM ET
Wednesday:
EIA Petroleum Status Report, Treasury Budget
Thursday: Jobless Claims, Retail Sales,
Business Inventories, Janet Yellen Speaks 10:30 AM ET
Friday: Import and Export Prices,
Industrial Production, Consumer Sentiment
HEADLINES:
S&P cuts Turkey Turkey Turkey
Consumer credit use jumps in December. U.S.
Mortgage applications stuck despite
falling rates.
Despite sliding interest rates driven by investors fleeing emerging market
securities, weekly mortgage applications have barely budged, according to the
Mortgage Bankers Association. Rates below 4.0% may spur additional refinancing
and mortgage activity. [ix]
Cold weather demand and tight supply
pushes oil prices up.
Crude oil staged a furious rally last Friday and closed just shy of $100 per
barrel. Tight North Sea oil supplies, persistently cold weather across the U.S.
“Perseverance is failing
19 times and succeeding the 20th.”
- J. Andrews
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