Apparently investors can now add the state of U.S. growth to their list of worries. Whether or not the worry is warranted will likely continue to be debated for some time. For example, economists tell us there is nothing to fear but fear itself at the present time due to the fact that the trend of the U.S. economic data remains positive. However, even the most ardent bulls will have to admit that the majority of the data seen over the past month has come in on the punk side.
Yet, the professional economists I know and trust insist that while we may indeed have seen a "turn" in the recent data, there is no "trend" to the downside.
The thing to keep in mind is that the stock market is a discounting mechanism for future expectations. As such, stocks don't wait for revisions to data that was released months ago or for a definable trend to develop. No, if traders start to sniff out a problem, they tend to sell first and ask questions later - especially in this day and age of millisecond data review and algo initiation.
The most recent problems have come from the Retail Sales report and yesterday's Philly Fed data. Unfortunately, Retail Sales continue to surprise to the downside and the Philly Fed index declined for a second consecutive month.
The bulls tell us not to worry about the December Retail Sales data. It was gasoline and a preponderance of gift card giving that kept the data down we're told. Thus, we should expect January's data to surprise to the upside as the public cashes in those gift cards.
Add It To the List?
So, should investors now add the state of the U.S. economy to their list of worries? This would mean that in addition to the crash in oil and commodities, the surge in interest rates, the debacle in Russia, new worries about Greece, China's growth rate, and the recent fallout from the latest move by the Swiss National Bank, investors will now need to watch the U.S. economic data very closely.
The bears argue that the answer to this question is a resounding, Yes! Just look at the recent action in the stock market, we're told. Why else would the stock market be on the verge of breaking down here?
S&P 500 - Daily
View Larger Image
Still All About Oil
While the argument from our furry friends would certainly seem to make sense and investors should probably pay particularly close attention to the economic data in the coming days/weeks, the real story in the market remains the crash in oil prices.
Point number one is that stock prices continue to be tied to oil on an intraday basis. If you aren't convinced here, simply pull up a one-minute chart of the USO and the SPY. Then start watching the intraday action. The point that these two are currently joined at the hip should become obvious in fairly short order.
Point number two is tying prices to oil keeps things simple at this stage of the game. The big concern with the dive in oil isn't necessarily the price of the commodity itself but rather the ripple effect that could occur in response. Junk bonds. Emerging markets. Banks. Jobs in the U.S. Etc. The bottom line is all of the above could be negatively affected by the crude's rude move.
So, how do investors possibly keep track of all the potential consequences from the crash in oil? Well, the current thinking is, why not just follow the price of oil itself?
Think about it. If oil continues to fall from here, the potential for all of the above problems (and more) increase. And if oil rallies, the potential consequences would seem to diminish.
Remember, at some point, oil will rally - and rally hard - as market crashes tend to follow a similar script. First there is the massive decline. Then there is a snapback, which tends to be fast and furious. This is followed by a retest of the lows. And then finally, there is the long period of consolidation.
Due to the fact that (a) most traders know the crash play book inside and out, and (b) crude is quickly approaching the generally accepted price target of $40, investors should probably expect that "fast and furious" rebound in crude at some point soon. And the good news is that if stocks continue to follow the price of oil around like a little puppy dog, then the big bounce in oil could be mirrored in the stock market.
The bottom line is that while the U.S. economic data is a nice distraction, this stock market remains all about oil.
Turning To This Morning
Just about the time you decide to ignore everything except the price of oil, our friends in Greece come back into the mix. In addition to the political uncertainty/instability being caused by the upcoming election, this morning there are new problems in the banking sector. Word is that two Greek banks have requested emergency assistance, which, of course leads to the question of how many more will come forward? This has caused the focus to shift back to Europe. So, despite oil rallying a bit in the early going, futures point to a lower open on Wall Street.
Here are the Pre-Market indicators we review each morning before the opening bell...
Major Foreign Markets:
Hong Kong: -1.01%
Crude Oil Futures: +0.81 to $47.06
Gold: +$4.30 at $1269.30
Dollar: higher against the yen and pound, lower against the euro
10-Year Bond Yield: Currently trading at 1.715%
Stock Indices in U.S. (relative to fair value):
S&P 500: -9
Dow Jones Industrial Average: -81
NASDAQ Composite: -27
Thought For The Day:
Success is not permanent & failure is not fatal. -Mike Ditka
Positions in securities mentioned: None
Wishing you green screens and all the best for a great day,
Investment Advisory Services Offered Through CONCERT Wealth Management, Inc. An SEC Registered Investment Advisor
The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report is for informational purposes only. No part of the material presented in this report is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program.
Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided.
The analysis provided is based on both technical and fundamental research and is provided “as is” without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.
David D. Moenning, an advisor representative of CONCERT Wealth Management Inc. (CONCERT), is founder of Heritage Capital Advisors LLC, a legal business entity doing business as Heritage Capital Research (Heritage). Advisory services are offered through CONCERT Wealth Management, Inc., an SEC registered investment advisor. For a complete description of investment risks, fees and services review the CONCERT firm brochure (ADV Part 2) which is available from your Investment Representative or by contacting Heritage or CONCERT.
Mr. Moenning is also the owner of Heritage Capital Management (HCM) a state-registered investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Neither HCM, Heritage, or CONCERT is registered as a broker-dealer.
Employees and affiliates of Heritage and HCM may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Editors will indicate whether they or Heritage/HCM has a position in stocks or other securities mentioned in any publication. The disclosures will be accurate as of the time of publication and may change thereafter without notice.
Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results.