Daily Market Update – January 6, 2015 (8:30 AM)
The initial reason given for yesterday’s market sell-off was rampant profit taking among people waiting to sell until after New Years, so that they could delay paying their capital gains taxes until 2016.
Yet somehow the same didn’t occur in January 2013, when there were far more gains from the previous year and if it happened in January 2014, it waited a couple of weeks for one of those standard mini-corrections to kick in.
The likelihood that yesterday’s 330+ sell-off was tax related was pretty small, as in the absence of any kind of panic or major news story, it’s not likely to see so many acting in concertt for the same reason. Instead, it’s more likely that with oil getting below $50 the market again got dragged along, after having disengaged itself from that weakness with the realization that as long as demand exists, falling oil prices is an incredible gifts to most economies and to most companies.
While yesterday’s drop did begin to create some appealing price points for some stocks, there’s still a lot of uncertainty ahead this week and I wasn’t overly eager to commit to any new positions. There’s still the issue of falling oil, as the futures are pointing lower again this morning and the unknowns of the upcoming FOMC Statement release and the Employment Situation Report.
I don’t really expect either of the latter two to drag markets lower, as it’s unlikely that the FOMC would so quickly say anything to go counter to their declaration for “patience” before interest rate rises are considered. Their change to that wording was interpreting as meaning that they would have greater flexibility in responding to data, but the data is still scant.
The actual FOMC meeting starts today and for the past few months markets have abandoned their caution in anticipation of the release and rallied in advance of the meeting. This morning’s stock futures indicates a mild rise, but after a 330 point decline, that rise barely even qualifies as a bounce, much less an FOMC inspired rally.
With no new positions opened yesterday there’s still plenty of opportunity to do so, but I don’t know if that opportunity will result in the probability of doing so.
While oil continues to grab attention there has been almost no discussion of holiday retail sales and they have mostly gone under the radar, as the only thing we really know is that some declines in brick and mortar sales may have been offset by on-line activity. As earnings season begins next week and the major retailers begin to announce their earnings a couple of weeks into the season, we should begin seeing some of the data that the FOMC may begin to consider, as there’s likely to be some evidence of the consumer sector heating up.
Unfortunately, good economic news in the US, fueled by lower oil and continuing good news on the employment front, may be tempered a bit by some renewed nervousness over what’s going on in the European Union, as the fragility and dysfunction of the Greek economy is being replayed and the integrity of the Euro and the entire European Union is again being questioned.
There’s some reason to believe that yesterday’s weakness across Europe as a result of the building concern may have spilled over to our side. If that’s the case, the uncertainty may still have a few weeks to go. What is a little concerning is that the regularity of our mini-corrections every two months for the past 2 years is being disrupted, as we had one right on schedule in mid-December, but are now seeing a very uncharacteristic second wave of selling after the recovery that began in the middle of December.
Not only is that second wave of selling unusual, given the past couple of years, but it also disrupted what is usually a very good December and wiped out the Santa Claus Rally.
Each of those is usually as much of a “done deal” as you can find, but not this year.
So for today, I’m hoping that the pre-FOMC enthusiasm does take hold and would gladly sell calls into strength, but I’m not counting on it and not especially counting on the subsequent major economic events of the week to propel us forward in any meaningful way this week.