January Ends In The Dumps

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Stocks fell again with the Dow managing its worst January fall since (gulp!) 2009 and before that 1990. The rally Thursday was reversed and even a large POMO actio n only helped mid-day. So why did markets fall again Friday? More currency issues affect countries from Argentina to Australia and many lesser countries including Hungary, Romania, South Africa and so forth. Below is the Argentine short-term bond yield at near 19%. Any takers?


Perhaps stocks are just correcting that light volume, fee-driven ramp-up that happened in late December. This scenario makes sense to me absent the new currency and EM upheaval. That said, I do have this eerie feeling we’re seeing markets much like DotCom days in January 2000. Back then volatility increased and prices yo-yo'd until the blow-off top came in late March. However, before we get too excited about the current market, know that the S&P 500 is only down less than 4% since the December high--that's barely enough to qualify as a shallow correction. Da Bulls’ will embrace this story going forward while Da Bears will be quick to state that this could be the start of something big. 

As a matter of fact, Stock Trader’s Almanac states, “...every down January since 1938, without exception, has preceded a new or extended bear market, a 10% correction, or a flat year.” That’s something to chew on.


Economic data Friday included a weak Personal Income (0.0% vs 0.2% expected, and prior 0.2%) and Outlays (0.4% vs 0.2%, and prior 0.4%) report, which meant  incomes obviously continue to fall while spending rises—all in all, a poor combination. 

The Employment Cost Index rose to 0.5% vs 0.2% expected, and prior 0.4%, meaning employer costs are rising. 

The Chicago PMI rose a notch to 59.6 vs 59.5 expected, and prior 59.1, which seems good on the surface, but digging down into the numbers, employment fell to -49 from over 50—a big negative. 

Lastly, Consumer Sentiment dropped to 81.2 vs 81 expected, and prior 82.5 in December.  

Meanwhile, earnings news was mixed with Google (GOOG) and Chipotle (CMG) scoring gains, while Amazon (AMZN) and Chevron (CVX) sported losses. 

Leading sectors lower were Financials (XLF), Banks (KBE), Healthcare (XLV), Energy (XLE), Biotech (IBB), Solar (TAN), Consumer Discretionary (XLY), Japan (EWJ), EAFE (EFA), Brazil (EWZ), Australia (EWA), Europe (IEV), Russia (RSX), and Base Metals (DBB). A few leaders today included Gold (GLD), Gold Miners (GDX), Bonds (TLT), Dollar (UUP), REITs (IYR) and Homebuilders (ITB).

Our staff also puts together the daily top 40 ETF market movers by percentage change in volume for gainers, decliners and emerging volume. This is a tool that investors can use to shorten their search for suitable ETFs, without being dominated by typical high volume issues or leveraged and/or inverse ETFs.

Volume on selling continues to expand as distribution continues. Breadth per the WSJ was negative.


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A poor and volatile week of performance by markets is all one can conclude. Again it just may be the last two weeks of December went overboard so now we correct that fee driven period. The Stock Trader’s Almanac is sobering given its accuracy. But we do live in different times given what Fed policies have led to. But, now these policies are being slowly cut back and there’s withdrawal for the previous bullish theme. There’s also a new Fed chair taken office Monday and she’ll need to prove to markets her dovish reputation and establish credibility quickly.

Economic data has not been good overall and earnings are mixed. We enter February with some serious challenges and doubts.

Enjoy your weekend.

Let’s see what happens.


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