Market Update: Monday, February 8, 2016


  • Stocks fall after jobs report muddies Fed picture. Indexes started Friday’s session lower after the U.S. nonfarm payrolls report failed to clarify the potential direction of future rate hikes. Selling pressure continued throughout the day as the dollar gained ground, weighing on WTI crude oil prices, which were down 2.1%. Technology stocks led market declines, and consumer discretionary and healthcare also fell; while defensive sectors–telecom and utilities–managed to advance. COMEX gold also moved higher amid equity declines, but the benchmark 10-year Treasury yield finished the day unchanged at 1.85%. Final tallies: Dow -211.75 at 16204.83, Nasdaq -146.41 at 4363.14, S&P 500 -35.43 (1.8%) at 1879.98.
  • Global selloff continues. Equities are down sharply this morning, led again by technology stocks, as global growth concerns persist amid another bout of oil weakness and anxiety after Friday’s U.S. jobs report. Overseas, European markets are awash in red with cyclicals also bearing the brunt of selling pressure. Asian stocks fell modestly overnight, though Chinese exchanges are closed for the week in observance of the Lunar New Year and the Nikkei Index rose 1.1%, helped by weakness in the Japanese yen. Elsewhere, U.S. crude fell back below $30/barrel while gold and Treasuries are advancing.


  • Yellen testimony highlights the week ahead. Federal Reserve (Fed) Chair Janet Yellen delivers her semiannual Monetary Policy testimony to the House on Wednesday, February 10 and to the Senate on Thursday, February 11 amid another large disconnect between what the market thinks the Fed will do (no rate hikes this year) and what the Fed says it plans to do (four 25 basis point hikes this year). The New Hampshire primary on Tuesday will get plenty of attention from the market, as will the January retail sales data for January on Friday. Overseas, the Q4 gross domestic product (GDP) report in the Eurozone is due out on Friday, and (GDP) reports in India, Poland, and Thailand are due this week, as the Chinese economy and markets are all but shut down for the Lunar New Year holiday which began over the weekend.
  • Looking back at last week. Last week, many of last year’s leaders took a big hit. Large cap technology was hit extremely hard, with the Nasdaq 100 down 5.8% versus the S&P 500 down 3.1%. Once again, the more defensive groups like utilities, gold, and consumer staples held up well; whereas, technology, healthcare, and consumer discretionary lagged. We’ve pointed out many times how volatile conditions have been lately, and here’s one more way to show this: the S&P 500 has moved at least 1% (up or down) for the week for five consecutive weeks. This is the longest streak like this in a year. Lastly, overall sentiment continues to sour. Active investment managers are the latest to throw in the towel. The National Association of Active Investment Managers (NAAIM) Exposure Index* came in at its lowest level since late September.
  • Bear market without recession? There have been ten bear markets since 1968, and four of them occurred without an accompanying recession. In this week’s Weekly Market Commentary due out later today we look at the characteristics of these non-recessionary bear markets to assess the probability that stocks may be entering a bear market even in the absence of a U.S. recession. Historical drivers of non-recessionary bear markets have included policy mistakes (1976), financial crises (1998, 2011), and excessive speculation (1987), with an average S&P 500 decline of 23%. We see the odds of a 20% or more drop in the S&P 500 from 2015 highs as relatively low (perhaps 20%), with a policy mistake—the Fed’s or China’s—as the most likely potential cause. The S&P 500 is down 11.6% from its May 2015 record closing high.
  • Earnings malaise continues. With more than 60% of S&P 500 companies having reported fourth quarter 2015 results, the wait for a better earnings story will continue a while longer as low oil prices and a strong U.S. dollar continue to weigh on results. Fourth quarter 2015 earnings continue to track below prior expectations (to a 4.1% year-over-year drop), while 2016 estimates have been reduced by an above-average 3% since quarter end, led down not surprisingly by the energy and materials sectors, and are likely to fall further. Thomson-tracked consensus estimates now reflect just a 4% increase in S&P 500 earnings in 2016.




  • Japan: Economy Watchers Survey (Jan)


  • New Hampshire Primary
  • Japan: Machine Tool Orders (Jan)


  • Fed Chair Yellen Delivers Monetary Policy Testimony to Congress – House


  • Fed Chair Yellen Delivers Monetary Policy Testimony to Congress – Senate
  • Sweden: Riksbank Meeting


  • Retail Sales (Jan)
  • Consumer Sentiment and Inflation Expectations (Feb)
  • Dudley* (Dove)
  • Eurozone: GDP (Q4)


  • China: New Loan Growth and Money Supply (Jan)
  • Japan: GDP (Q4)

Click Here for our detailed Weekly Economic Calendar


*National Association of Active Investment Managers (NAAIM) Exposure Index: Member-polled index representing average equity market exposure.

Important Disclosures

Past performance is no guarantee of future results.

The economic forecasts set forth in the presentation may not develop as predicted.

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

Stock investing involves risk including loss of principal.

Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks.

Treasury inflation-protected securities (TIPS) help eliminate inflation risk to your portfolio, as the principal is adjusted semiannually for inflation based on the Consumer Price Index (CPI)—while providing a real rate of return guaranteed by the U.S. government. However, a few things you need to be aware of is that the CPI might not accurately match the general inflation rate; so the principal balance on TIPS may not keep pace with the actual rate of inflation. The real interest yields on TIPS may rise, especially if there is a sharp spike in interest rates. If so, the rate of return on TIPS could lag behind other types of inflation-protected securities, like floating rate notes and T-bills. TIPs do not pay the inflation-adjusted balance until maturity, and the accrued principal on TIPS could decline, if there is deflation.

Bank loans are loans issued by below investment-grade companies for short-term funding purposes with higher yield than short-term debt and involve risk.

Because of its narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.

Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments.

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Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards.

High-yield/junk bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors.

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Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged.

Technical Analysis is a methodology for evaluating securities based on statistics generated by market activity, such as past prices, volume and momentum, and is not intended to be used as the sole mechanism for trading decisions. Technical analysts do not attempt to measure a security’s intrinsic value, but instead use charts and other tools to identify patterns and trends. Technical analysis carries inherent risk, chief amongst which is that past performance is not indicative of future results. Technical Analysis should be used in conjunction with Fundamental Analysis within the decision making process and shall include but not be limited to the following considerations: investment thesis, suitability, expected time horizon, and operational factors, such as trading costs are examples.

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