Global Market Turbulence Forces Central Banks To Act: Inaction Is Action For Some

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Includes: DIA, IWM, QQQ, SPY
by: Seth Golden

Summary

U.S. equities squeeze out first weekly gains of the year.

Central bankers come into focus this week around the world.

Economic data remains mixed, but existing home sales proved favorable last month.

Finally, stocks managed to squeeze out their first weekly gain of the New Year. With oil rebounding sharply in Friday's trade, equities found some relief as they tied their sales to black gold. But it wasn't just the rise in crude oil prices that helped to lift stocks for the week. Hints about a further loosening of monetary policy from European Central Bank President Mario Draghi and Japanese Prime Minister Shinzo Abe also encouraged the bulls on Wall Street.

The tech-heavy Nasdaq Composite outperformed the other main U.S. indexes, recording a weekly gain of 2.3%. The Dow Jones Industrial Average finished higher Friday by 210.83 points, or 1.3%, higher at 16,093.51, posting a 0.7% weekly gain. Meanwhile, the S&P 500 jumped 37.91 points, or 2%, to finish at 1,906.9, up 1.4% on the week. If you thought the financial sector would perform well in 2016 due to the Federal Reserve raising interests rates, which would likely serve to grow banking margins, think again. Industrial shares and financial shares were the only two of the S&P's 10 sectors to not finish in the green last week.

While the United States economic data has left much to be desired in the New Year, last week's existing home sales report finally gave the markets something to cheer about. Sales of existing homes soared 14.7% in December, the biggest monthly increase ever recorded, reflecting some makeup from a depressed sales pace in November. Home re-sales ran at a seasonally-adjusted annual rate of 5.46 million, the National Association of Realtors said Friday. December's number was 7.7% higher compared to the same period a year ago. Sales in 2015 totaled 5.26 million, the best since 2006's 6.48 million.

There were 3.9 months' worth of homes available in December, the lowest since January 2005. That's also continuing to drive prices higher. The median price rose to $224,100, up 7.6% compared to a year ago.

The December figure is a strong rebound from an alarming 4.76 million annual rate posted in November, which marked the sharpest decline in more than 5 years. The National Association of Realtors believes new mortgage rules, known as TRID or "Know Before You Owe," sidelined many closings in November and pushed more activity into December.

With one week of market gains in the bag, next week will be a pivotal week for the markets and market participants. The Federal Reserve will come together for a highly anticipated, two-day meeting, ending with a statement on monetary policy. Investors will be paying attention to the Fed's views and assessment regarding the health of the global market, especially after European Central Bank President Mario Draghi signaled that a punishing drop in oil futures was startling enough to reconsider the ECB's stimulus efforts. Markets aren't expecting the Fed to raise rates next week. Fed-futures reflect a 12% probability of a hike, according to the CME's FedWatch tool late Friday. Additionally, Barclay's had thoughts of their own with regards to the Federal Reserve meeting next week and market's perceptions of what the Fed might have to offer. Barclays writes that an unchanged policy outcome is likely, but commentary on market volatility will be important for market sentiment and "could provide some much needed silver lining if it validates current market pricing, which is far more dovish than Barclays' expectations of 75 basis points of hikes this year."

Next week the markets will be leading investors into the heart of earnings season with many key tech titans set to report earnings. Apple Inc. (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN), along with 10 other Dow industrials components are some of the key reports for the week to come. The following table outlines some of the companies reporting earnings next week. (*Table supplied by Market Watch)

Dow components reporting this week

Report date

Company/ticker (FactSet EPS / revenue estimates)

Mon., Jan. 25

  1. McDonald's ($1.23 / $6.24 billion)

Tues., Jan. 26

  1. Apple ($3.23 / $76.66 billion)
  2. Johnson & Johnson Inc. (NYSE:JNJ) ($1.42 / $17.87 billion)
  3. 3M Co. (NYSE:MMM) ($1.63 / $7.21 billion)
  4. DuPont (NYSE:DD) (27 cents / $5.36 billion)
  5. Procter & Gamble (NYSE:PG) (98 cents / $16.94 billion)

Weds., Jan. 27

  1. Boeing Co. (NYSE:BA) ($1.63 / $23.57 billion)
  2. United Technologies Corp. (NYSE:UTX) ($1.53 / $15.3 billion)

Thurs., Jan. 28

  1. Microsoft Corp. (71 cents / $25.27 billion)
  2. Visa Inc. (NYSE:V) (68 cents / $3.61 billion)
  3. Caterpillar Inc. (NYSE:CAT) (69 cents / $11.44 billion)

Fri., Jan. 29

  1. Chevron Corp. (NYSE:CVX) (46 cents / $27.56 billion)
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Notable S&P 500 components reporting this week

Report date

Company/ticker (FactSet EPS / revenue estimate)

Mon., Jan. 25

  1. Kimberly-Clark Corp. (NYSE:KMB) ($1.43 / $4.57 billion)
  2. Halliburton Co. (NYSE:HAL) (24 cents / $5.11 billion)

Tues., Jan. 26

  1. AT&T Inc. (NYSE:T) (63 cents / $42.73 billion)
  2. Lockheed Martin Corp. (NYSE:LMT) ($2.95 / $11.9 billion)
  3. Corning Inc. (NYSE:GLW) (31 cents / $2.33 billion)

Weds., Jan. 27

  1. Facebook Inc. (NASDAQ:FB) (68 cents / $5.37 billion)
  2. Biogen Inc. (NASDAQ:BIIB) ($4.06 / $2.71 billion)
  3. Qualcomm Inc. (NASDAQ:QCOM) (90 cents / $5.7 billion)
  4. eBay Inc. (NASDAQ:EBAY) (50 cents / $2.31 billion)

Thurs., Jan. 28

  1. Amazon.com ($1.58 / $35.96 billion)
  2. Amgen Inc. (NASDAQ:AMGN) ($2.29 / $5.53 billion)
  3. Altria Group Inc. (NYSE:MO) (68 cents / $4.74 billion)
  4. Celgene Corp. (NASDAQ:CELG) ($1.23 / $2.54 billion)
  5. Bristol-Myers Squibb Co. (NYSE:BMY) (28 cents / $4.15 billion)
  6. Eli Lilly & Co. (NYSE:LLY) (78 cents / $5.33 billion)
  7. Ford Motor Co. (NYSE:F) (48 cents / $36.39 billion)
  8. Time Warner Cable Inc. TWC, +1.53% ($1.78 / $6.05 billion)
  9. Abbott Laboratories (NYSE:ABT) (61 cents / $5.28 billion)

Fri., Jan. 29

  1. AbbVie Inc. (NYSE:ABBV) ($1.12 / $6.39 billion)
  2. Honeywell International Inc. (NYSE:HON) ($1.58 / $9.97 billion)
  3. Colgate-Palmolive Co. (NYSE:CL) (72 cents / $3.93 billion)
  4. MasterCard Inc. (NYSE:MA) (70 cents / $2.56 billion)
  5. American Airlines Group Inc. (NASDAQ:AAL) ($1.97 / $9.64 billion)
  6. Phillips 66 (NYSE:PSX) ($1.33 / $22.28 billion)
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It's quite simplistic to suggest that the markets aren't "out of the woods" just yet. As we all attempt to grapple with a litany of issues facing the markets and most specifically equities, some investors and analysts are casting a more optimistic outlook on the market than others. BMO's Brian Belski is one such analyst, which believes the markets will rebound in the near-term as wrote in his notes to clients last week the following:

The S&P 500 is currently on pace to record its worst monthly decline since January 2009 and 11th worst month during the post war era. Obliviously this weakness has shaken investor confidence with some fearing that an end is nowhere in sight. Fortunately, the empirical evidence suggests otherwise. In fact, we examined S&P 500 performance following its 20 worst months during the post war era and found that, on average, performance tends to snap back rather sharply following such poor months. For instance, the average gain for the S&P 500 during the 3/6/12-months following the 20 worst months is roughly 3%, 7%, and 15%, respectively. More important, the index has almost never recorded a loss during these subsequent months. As a result, this is one data point that we believe reinforces our view that S&P 500 levels could rise by double-digits in percentage terms from current levels between now and year-end."

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.