Equities Get Crushed As The Bear Is Alive And Well

Ulli Market Commentary Contact

Wed pic

[Chart courtesy of MarketWatch.com]

1. Moving the Markets

Intense selling returned to Wall Street in afternoon trading Wednesday, pushing the Dow down 365 points and slicing 3.4% off of the tech-packed Nasdaq, dashing hopes for a third straight day of gains on Wall Street and extending the financial pain in what has been a horrific start to the year.

Earlier in the day, it appeared the market math was basic Arithmetic 101: Better data from China plus higher oil prices equals higher stock prices. But that investment thesis gave way later to fears of a global recession and the decision of investors to pare back risk and sell stocks confirming that the bearish trend is in full force.

We heard some disappointing news from GoPro (GPRO) today. The company said it only expects to post revenue of $435 million during the fourth quarter, missing analysts forecasts calling for revenue of $508 million by 14%. The company blamed lower than anticipated sales of its capture devices due to slower than expected sell through at retailers. They also announced it would cut 7% of its workforce of more than 1,500 employees as of the end of 2015. GoPro is one of the most severe examples of the recent crop of over-hyped technology companies selling hardware and winning a huge valuation with investors. The dose of reality seems to be spreading.

All of our 10 ETFs in the Spotlight shifted into reverse and got spanked as the bears took charge. Getting downright clobbered was Consumer Discretionaries (XLY) with -3.37%. Resisting the mauling the best were the Select Dividend ETF (DVY) and the Low Volatility ETF (SPLV) which each gave back -1.50%.

This is the time for preservation of capital, and we continue to stay on the sidelines.

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Stocks Stay Afloat For Second Straight Day

Ulli Market Commentary Contact

Tue pic

[Chart courtesy of MarketWatch.com]

1. Moving the Markets

Just when it looked like stocks would never go up again, the tide shifted slightly on Monday with the Dow edging higher by 52 points, relieving some of the bearish pressure that has weighed on Wall Street since the start of the year. Now, investors are eyeing a hoped-for bounce after plunging 6% last week and dipping to what Wall Street calls extremely “oversold levels.”

Equities staged another late day rally today, sending the Dow up 117 points, as Wall Street managed to post a second straight day of gains. But that’s not to say that investors didn’t see another volatile trading session. U.S. stocks initially posted big gains early following a day of market stability in China. That rally fizzled after a renewed dip in oil prices. But stocks reversed course again and moved higher late in the day.

Helping matters was a rise in the value of the Chinese currency, the yuan, for the third straight day. Prior to the recent streak of gains, the yuan (renminbi) had lost value vs. the USD for eight straight trading sessions, which suggested that China’s economy was worse off than previously believed.

There aren’t many people who feel bad for oil companies. But the implosion in oil prices, which briefly pushed the price of U.S. Crude below $30 a barrel Tuesday for the first time since 2003, is causing a profit decline that almost invokes pity. The companies in the S&P 500 energy sector are expected to lose a collective $28.8 billion this calendar year, down from $95.4 billion in net income earned during the industry’s bonanza year of 2008.

All of our 10 ETFs in the Spotlight participated in the rebound and closed up. Leading the field was Healthcare (XLV) with +1.28%, while the Select Dividend ETF (DVY) lagged with +0.10%.

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Not A Horrible Day In The Market, But No Real Sunshine

Ulli Market Commentary Contact

Mon pic

[Chart courtesy of MarketWatch.com]

1. Moving the Markets

The stock market closed mixed on Monday, a welcome respite from what has been the worst start to a year ever on Wall Street, though the plunge in oil continued and sent crude prices to levels last seen in 2003. Stocks initially shrugged off more turbulence in the mainland China stock market overnight, where shares plunged 5.3% after last week’s 10% drubbing on growth fears, and jumped at the open only to see the gains evaporate at midday and then recover again late in the session.

Investors are still hoping the U.S. stock market can eventually stabilize after a horrific start to the year last week, when the Dow tumbled 6.2%, the Standard & Poor’s 500 fell 6% and the broad market, as measured by the Wilshire 5000 Total Market Index, suffered a paper loss of $1.5 trillion. To my way of thinking, the markets are simply adjusting to life without Fed intervention, which means that for the first time in years risk is being repriced based on underlying fundamentals—the way it should be.

The energy sector took the hardest hit as oil prices tumbled further and briefly fell below $31/barrel. U.S. crude slid 5.7% to $31.29 a barrel and is at the lowest level since 2003.

Wall Street will be watching the start of the fourth-quarter earnings reporting season, which unofficially kicks off after today’s closing bell with a report from aluminum maker Alcoa (AA). Like the past two quarters, analysts are projecting negative growth for the quarter.

7 of our 10 ETFs in the Spotlight finally managed to show a positive closed led by Consumer Staples (XLP) with +0.94%. On the downside, Healthcare (XLV) got clobbered at the tune of -1.19%.

We remain on the sidelines as the bear market continues. For the exact numbers, please see section 3 below.

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ETFs/Mutual Funds On The Cutline – Updated Through 01/08/2016

Ulli ETFs on the Cutline Contact

Below are the latest ETF Cutline reports, which show how far above or below their respective long-term trend lines (39 week SMA) my currently tracked ETFs/MFs are positioned.

The first report covers the ETF Master List from Thursday’s StatSheet and includes 381 ETFs, of which currently 18 (last week 56) are hovering in bullish territory.

The second report includes only High Volume ETFs. To clarify, High Volume (HV) ETFs are defined as those with an average daily volume of $10 million or higher. Volume figures can change in a hurry, so be sure to check first before investing.

These ETFs are generated from my selected list of 98 that I use in my advisor practice. It cuts out the “noise,” which simply means it eliminates those ETFs that I would never buy because of their volume limitations. 6 ETFs (last week 9) have managed to remain in bullish territory after the recent market volatility.

The third report covers Mutual Funds on the Cutline. There are currently 13 (last week 30) above the line and 768 below it out of the 781 that I follow.

Take a look:

  1. ETF Master Cutline Report
  2. ETF High Volume Cutline Report
  3. MF Cutline Report

In case you are not familiar with some of the terminology used in the reports, please read the Glossary of Terms.

If you missed the original post about the Cutline approach, you can read it here.

One Man’s Opinion: Are Financials The Cheapest Among Cyclical Stocks In The Market?

Ulli Market Review Contact

ManUS equities are expected to give single-digit returns this year though the initial days look a little bad, said Bob Doll of Nuveen Asset Management. The current market turmoil looks a lot like August last year with plenty of similarities.

China authorities did some things then, and they will do some things now (to calm the markets). Chinese policy makers have to be focused on the domestic economy, and they have to be equally focused on the markets because that’s (the turmoil) exported all over the world. In the meantime, US consumers are doing just fine along with job growth, wage-rate gains and much cleaner individual balance sheets. The US domestic economy may not be doing great, but it’s doing fine, he noted.

Asked if it’s difficult to be an US equity strategist now since oil price forecast and Chinese currency movement is of paramount importance, Bob answered in the affirmative. For the markets to come out of the funk, stabilization of oil prices and a cessation of the dollar’s up-move versus the Yuan would be required, which would be achieved eventually as it was done in August.

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New ETFs On The Block: First Trust SSI Strategic Convertible Securities ETF (FCVT)

Ulli Convertible Securities Contact

InvestingWhile the debate among market participants rages about the frequency of rate increases in 2016, investors worried about capital protection may consider an industry first fixed-income product product since not all bonds would get hammered with the gradual normalization of interest rates.

Case in point: convertible bonds that could potentially offer higher total returns as they allow meaningful participation in both equity returns and current income along with a certain degree of principal protection.

For the uninitiated, convertible bonds are debt instruments that can be converted into certain amount of ordinary shares of the issuer’s equity at some point in time. Convertibles, a hybrid debt instrument with equity-like traits, tend to outperform stocks in rising rate environments and have historically outpaced bonds during periods of rising rates. The embedded option that allows the holder to convert debt into equity pares the interest rate sensitivity of the convertible securities.

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