Stocks have defied Wall Street convention that the early days of the new year are more often positive. The S&P was down for four straight sessions as of Monday, the longest losing streak in 13 months. The S&P 500 is down 3.4 percent over the past five sessions, and is negative for the Santa Claus rally period for the first time since 2007. That is the last five sessions of the old year and first two of the new year.
"The saying is 'If Santa Claus may fail to call, bears may come to Broad and Wall,' " said Jeff Hirsch, Stock Trader's Almanac editor-in-chief. Hirsch said that while there's concern about the market not being up in the seven-day period, he also looks at other metrics, such as whether the first five days of the year are higher and whether January is up or down.
The last four times the market had a loss during the Santa rally period, the market was down three times for the full year, but up once, with a 3 percent gain in 2005. In 2005, the market was also lower for the month of January, viewed as a bad omen, and down in the first five days of the year, another bad sign.
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Bespoke pointed out, in a note, that the S&P has seen a decline of one percent or more on one of the first two trading days of the year only 19 times since 1929, and in those years January was still positive 65 percent of the time.
Jack Ablin, CIO of BMO Private Bank said that some of the pressure on the market may be due to tax selling. "People sell the losers at the end of the year and sell the winners at the beginning of the year," he said, adding that could continue for a few days. Airlines were one of the winners in 2014, and the Dow Transports were up 23.5 percent last year. But the Transports were down 2.7 percent Monday with airlines among the losers.
"We'll have to see. We'll likely get some rallies here. The question is do you buy dips? It's hard to know because the U.S. is fairly expensive…. I might start reducing risk all around, raise some cash and take a deep breath and figure out where to go next," he said, noting that he'll look overseas. "Emerging markets haven't been this cheap relative to the U.S. since 2001-02, which is when the emerging markets ran on a five-year tear."
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Strategists say a reprieve from the selling could come from two events this week: Wednesday's release of Fed minutes and the December jobs report, released Friday morning. Tuesday's data includes ISM nonmanufacturing data and factory orders, both at 10 a.m. ET.
"Let's see what the Fed minutes have to say. If you get bullish signals from the minutes and the jobs report, that could provide some bullish cover that could diffuse some of this, at least temporarily," said Adrian Miller, managing director, fixed income strategy at GMP Securities. "If the minutes are inconclusive and the jobs numbers for December is weaker than thought, that could add fuel to this weakness." Economists expect about 240,000 nonfarm payrolls.
Miller said Treasurys were initially weaker and focused on those U.S. events in early trading Monday, but worries about Europe and whether Greece would exit the euro zone sent in a rush of buyers. The 10-year yield, at 2.03 percent, was the lowest close since May 2013.
Speculation about Greece leaving the euro picked up after Der Spiegel reported that Germany was willing to let Greece leave the euro zone if it reneges on its bailout deal. Analysts expect Greece to continue to jolt the markets until its election Jan. 25, three days after the European Central Bank meets.
"To get Europe out of this rut is going to take a lot. It's going to take a lot more than monetary policy," said Ablin. Traders said the U.S. market could take its cue from Europe on Tuesday and from oil prices.
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"I think the bond market is acting on a reactionary basis with energy dictating all things," Miller said.
Markets were also fretting about whether the dive in oil prices is more of a negative to the U.S. or a positive. One worry is that some of the riskier companies in the energy sector could start to default on their debt, creating contagion.
"Who knows how much pain they're going to be able to accept…. We haven't seen a shoe drop on the credit side yet," said Ablin.
Buyers are moving into Treasurys with a tailwind of a stronger dollar and lower yields in other parts of the world, where central banks are still easing. Europe is one of those markets, where expectations are running high the European Central Bank will decide to do quantitative easing, or purchase sovereign bonds, when it meets Jan. 22.
"The reason the dollar is rising, I believe, is U.S. bond yields are still twice what you can get in most countries around the world. On a relative basis, we're more attractive. Economically speaking, our economy looks better," said Sam Stovall, chief equity strategist at S&P/Capital IQ.
Stovall said energy is taking its toll on S&P 500 earnings. "Analysts are reducing their 2015 earnings estimates. At one time, the (S&P 500 EPS) estimate was $132. Now it's about $125…. It's especially energy companies and materials companies, they'll end up throwing everything out along with the kitchen sink in the fourth quarter," Stovall said.
Stovall said January could still be a positive month and the rally may have come earlier — in December. "I just think that people toward the latter part of the last year had to chase their bench marks. So many active managers were underperforming the index bench marks and in a sense, they had to go for broke. They had to load up on the momentum names because it's also a window dressing quarter. Now they're unloading stocks they did well in. A lot of the stocks being sold are those," he said.