Stocks staged a steady rally as Ebola fears ebbed and oil prices stabilized. Expectations the Fed will stay dovish helped too.» Read More
The doves are flying. Is there any doubt that, when it really comes to who influences markets, central banks rule the world?
Stocks in Europe moved up right after the open there. An European Central Bank board member, Benoit Coeure, said the ECB will start purchasing assets within days and that additional accommodation was available.
Separately, the Bank of England's chief economist, Andrew Haldane, said "interest rates could remain lower for longer, certainly than I had expected three months ago."
Then, this morning China's central bank said it would inject up to 200 billion yuan ($32.8 billion) into 20 large national and regional banks.
The SEC has charged a small firm, Athena Capital Research, with using rapid-fire trades in the final seconds of the trading day to manipulate the closing prices in some NASDAQ-listed stocks.
The SEC alleges Athena used an algorithm called Gravy to "mark the close." It traded on the order imbalances that occur at the end of the day. When there is an imbalance between buyers and sellers, NASDAQ routinely runs an auction to fill the order imbalances at the best price at the close. Athena, the SEC says, placed orders to fill imbalances, then traded shares on the market prior to the close on the opposite side of the order.
The trading occurred in a short period from June to December 2009.
While the firm is small and the fine of $1 million is not much, I think it is important symbolically.
I've been waiting for the SEC or NY Attorney General Eric Schneiderman to announce a case against a HFT for years. This is the first HFT manipulation case the SEC has brought.
The problem is, it's very difficult to get access to the information to prove that something "abusive" or "manipulative" occurred, which is the legal standard.
In this case, they were aided by email from the firm, which boasted that they were "owning the game."
For its part, Athena said, "While Athena does not deny the Commission's charges, Athena believes that its trading activity helped satisfy market demand for liquidity during a period of unprecedented demand for such liquidity. "
I've had no doubt that there is a small group that is engaging in some kind of abusive and manipulative behavior, and I'm glad they caught someone. More importantly, it shows they are finally getting access to data that enables them to catch the bad guys. Good for them.
How big a problem is this? I don't know, but I seriously doubt bigger players would ever engage in this kind of behavior. Still, it's good the SEC is being vigilant.
We don't care. Markets shrug at a positive report from Goldman Sachs and good weekly jobless claims. Stock futures dropped after strong weekly jobless claims came out at 8:30 a.m. EDT.
What do they care about? They care about not getting run over. They care about buying on the news and then finding themselves down 2 percent 15 minutes into the open.
They also seem to care about oil. Futures dropped to the lows of the morning just as U.S. oil dropped below $80, about 7:10 a.m. EDT.
Where's the bottom? Unfortunately, it isn't clear. Sure, many sectors are dramatically oversold, but any market watcher will tell you markets can remain overbought or oversold for a long time.
The main worries remain Ebola, geopolitics and concerns over global economic growth. None of them seem near a conclusion.
There are some small signs of reversals. For example, the Russell 2000 has outperformed 3 days in a row. The Russell is up 1.8 percent, with the S&P 500 down 2.2 percent.
On the other hand, defensive plays aren't working anymore. Consumer staples are down 2.6 percent this week after outperforming in the earlier part of the month.
Energy still seeing no signs of a bottom.
The earnings commentary wasn't exactly stellar. True, Goldman Sachs had a huge beat. It posted earnings pear share of $4.57 versus consensus estimates of $3.21 and $8.39 billion in revenue compared with expectations of $7.85 billion. The bank had strong fixed income trading revenues—but stock trading revenues were down—and investment banking was also strong.
Delta beat on the top and bottom line. Revenue growth of 6.6 percent year-over-year was respectable, though revenue growth of 0 to 2 percent for the fourth quarter is not exactly robust and will likely cause the stock to trade down.
Jet fuel costs will decline, however, to $2.69 to $2.74, down 8 percent year-over-year. Wouldn't it be great if they passed those lower fuel prices on to the rest of us? Don't bet on it. There was no mention in the release about Ebola concerns, but you can bet that will come up on the conference call.
Oilfield services provider Baker Hughes disappoints, big time. Third quarter earnings per share of $1.02 were well below expectations of $1.13.
The company reported a "sharp reduction in activity" in the Gulf of Mexico due to customer delays. Baker Hughes gets half of their revenues from North America, and the rest from Middle East, Europe, Africa, Russia and a few other spots. Disruptions in Libya and Iraq and a decline in the Russian ruble reduced revenues and margins in Europe, Africa and Russia. There was nothing in the report about lower oil prices or reduced capital expenditure from customers.
Here's what's hurting stocks: no growth in Europe, slower growth in China, deflation concerns (oil), Ebola, ISIS, disappointing U.S. Retail Sales data and what appears to be the demise of major M&A deal between Abbvie and Shire.
That's a lot for the market to deal with. Little wonder that the CBOE Volatility Index is over 30 for the first time since 2011, and the S&P 500 is down 9.8 from its historic intraday high, which it hit September 19th.
The 10-year yield hovering near 2 percent has been a real weight on financials, which are hurt by lower rates. The S&P Financials sector (XLF) is the weakest of the 10 S&P sectors; large U.S. banks were down 2 to 4 percent midday.
As an indication that weaker U.S. growth is an issue, look at Transports. Airlines were down 2 to 3 percent on Ebola concerns, but truckers and railroads were down 2 percent as well. That's a sign slower U.S. growth is a factor in the drop.
Oil threatening to break below $80 for the first time since 2012 again weighed on energy stocks...big exploration and production names like Apache (APA) and Chesapeake (CHK) were down 2 to 4 percent, as were refiners like Valero (VLO) because gasoline prices have been dropping as well.
As for M&A, the apparent demise of the Abbvie-Shire deal is another headache for hedge funds, who were heavily invested in the $54-billion deal.
That has nothing to do with economic data at all: tech and healthcare have been the beneficiaries of these tax inversion deals, so many of the deals built around tax strategies to grow earnings may be going by the wayside.
This whole push-back on tax inversions and sweetheart tax deals is not as much of a sideshow as it might seem. Interestingly, big brewers like Molson Coors (TAP), down 4.8 percent, and Craft Brew Alliance (BREW), down 6 percent, have been part of speculation of big mergers might happen.
Still, the trading action has been encouraging. Several times today, there has been strong volume push to the upside on market bottoms: at 9:44 AM ET and roughly 1:30 PM ET. During these periods, ETFs used by active traders like the PowerShares QQQ Trust (QQQ), iShares Core S&P 500 (IVV) and iShares Russell 2000 (IWM) saw notable volume spikes.
The futures were weak going into the Retail Sales report at 8:30 a.m. ET, but it wasn't that weak: down about 9 points from yesterday's close.
Then the disappointing Retail Sales hit at 8:30 a.m., and futures dropped another 9 or so points. At that point, we were down about 18 or 19 points.
But within 10 minutes of the open, the S&P was down 40 points.
Stocks sank after a triple whammy of disappointing U.S. data. How disappointing was it? Even Europe dropped after the numbers came out at 8:30 a.m. EDT.
September retail sales and PPI both came in weaker than expected. October manufacturing activity in New York was poor too, falling short of estimates after posting its strongest pace in nearly five years last month.
September retail sales were troubling. Electronics had a nice pop, likely due to the release of the new iPhone, but everything else was disappointing. What happened? Isn't declining oil supposed to be a positive for retail sales? It is, but the big drop only occurred in October.
Most likely, there was a reverse wealth effect. Look what stocks did in September. The S&P was down 1.5 percent. There has been a lot of reliance on rising stock market prices as support for consumer spending. There is no wage and salary growth.
There is a lot of pain in hedge-fund land. Imagine how these guys feel. First, they have underperformed all year because most funds run a book of long stocks versus a book of short stocks. Because shorts have underperformed most of the year, they have underperformed the market. Again.
Now, they are getting killed because of how they are positioned: 1) long U.S. market, and 2) long growth stocks.
But a particularly painful example is energy. The Street has been heavily involved in exploration and production stocks, particularly smaller-cap shale plays, which have been dramatically growing earnings.
My inbox is full of talk about the technical damage that has been done to the markets. Less than 30 percent of stocks are above their 200-day moving averages. Only 20 percent are above their 10-day moving averages. It goes on and on.
The problem is this has taken everyone's mind off the fundamentals. True, there are many headwinds: greater risk of a slowdown in Europe and China, the end of quantitative easing, and the difficulty of controlling an Ebola epidemic.
But there are tailwinds as well: lower oil prices, a better U.S. economy and very high cash levels at U.S. corporations.
Given the negative sentiments, it's worthwhile to note that two bank executives highlighted the strengths of the U.S. economy in their earnings report Tuesday morning.
Wells Fargo CEO John Stumpf noted, "We continue to see signs of a steadily improving economy."
And JPMorgan Chase CEO Jamie Dimon said, "While challenges remain in the global economic recovery, the U.S. economy is an exception, showing signs of steady improvement."
Speaking of banks, three big names reported, with Citigroup announcing an earnings and sales beat, JPMorgan missing on earnings, and Wells Fargo roughly in line.
Traders have been looking for a bounce in two critical sectors...small caps and energy.
We did get a nice lift in the small-cap Russell 2000 (IWM) early morning, and it's about time: it has been a terrible underperformer for months, particularly in the last 30 days or so, when the Russell 2000 has been down roughly 10 percent versus the roughly 5 percent decline in the S&P 500.
Russell had been positive all day even as the S&P has drifted into negative territory, but now it too has drifted into negative territory.
No bounce at all in one dramatically oversold sector, energy. The main ETF for exploration and production stocks (XOP) is down 23% in the past month.
It's been a rough two weeks for the markets, and pessimistic gauges are in the danger zone. Indexes have been down on several concerns, principally growth fears stemming from Europe and China, and now Ebola. This has been balanced against a number of positive developments:
1) Improving U.S. economy;
2) Low inflation;
3) Accomodative central banks;
4) Valuations mostly not expensive; and
5) Lack of investment alternatives.
Still, sentiment seems extremely negative.The CBOE Volatility Index is up over 80 percent in the last month; market internal indicators have deteriorated dramatically, with an expansion of new lows and much technical damage. CNNMoney's Fear and Greed Index has indicated "extreme fear," up from "neutral" just a month ago.
Hedge fund manager Dan Loeb recommended Amgen's stock Tuesday, causing shares to rise on the news.
Corporate debt is piling up, but investors don't seem worried—at least for now—even though such complacency fueled the recession.
Larry Robbins of Glenview Capital unveiled four new stock picks at the Robin Hood Investors conference Tuesday.