August 2, 2014
Stocks ended the week down sharply despite the Fed maintaining its loose monetary policy. The week began quietly, mixed and little changed for the most part. Geopolitical problems in Gaza and Ukraine and weaker pending home sales data weighed on stocks. New sanctions on Russia also put pressure on equities. The Fed's Wednesday afternoon policy announcement was seen as continuing easy monetary policy for a "considerable" period after the end of taper. Also, earlier that day, a better-than-expected advance estimate for second quarter GDP was seen as favorable. Stocks dropped sharply Thursday with no one reason being the driver. Traders began to take the view that the Fed may raise policy rates sooner than earlier believed after the positive GDP number. There were also worries about Argentine debt as that country could not reach an agreement with bondholders and defaulted late Wednesday. The S&P 500 Index (SPX) was down 2.7% for the week and the tech-heavy Nasdaq (NDX) was off 2.2%. The Blue Chip-heavy Dow Jones Industrial Average ($DJI) fell 2.8% and the small caps (RUT, IWM) finished the week down 2.6%.
Option Volatility spike higher this week on the losses in stocks. The CBOE Volatility Index (VIX) increased by 34% albeit from extremely low levels. The ‘Fear Gauge’ closed above the $17 level for the first time in almost four months. The downturn in stocks feels different this time because ‘buyers on the dips’ were non-existent to end the week. Option premium rose sharply and it is beginning to create some better opportunities for our strategies. .
Rates on Treasuries ended the week mixed but with modest gains for the week. On Monday, yields nudged up despite a disappointing pending home sales report. Tuesday, rates eased marginally on modest flight to safety after the European Union and the U.S. added new sanctions against Russia for supporting separatists in eastern Ukraine. Rates rose notably at mid-week after a strong report on second quarter GDP. Treasury yields were little changed Thursday ahead of the Friday jobs report and they finished the week falling after the payroll jobs number for July came in below expectations.
The economy appears to be poised for decent growth for the rest of the year. The consumer and manufacturing sectors are healthy but housing is still mixed. Fed policy rates are likely to remain below historical averages for a considerable period according to the statement but they may not have taken into account the GDP number before it was released. There is a light schedule for economic data this upcoming week but the standouts are factory orders, international trade, and initial jobless claims. Earnings season is winding down but about 70% of reports have been higher than expected as corporations continue to out-perform. Look for the open of stock futures (/ES) on Sunday night at 5 pm CT for clues on market direction into next week.
Major Earnings for the Upcoming Week:
Monday:
A.M. – CAH, CAN, L, KORS
P.M. – AIG, CAR, CKP, MRO, THC, VVUS,
Tuesday:
A.M. – ADM, COH, CVS, EMR, FE, IFF, ISIS, MGM, MWW, ODP, REGN, VSI, VMC
P.M.- ACAD, ATVI, ATHL, CLR, DIS, EOG, FEYE, FSLR, GRPN, PBPB, TTWO, Z, ZGNX
Wednesday:
A.M. – ANR, AOL, ARIA, CHK, CTS, DVN, DISH, FWLT, FOX, NUS, RL, SEP, TWX, VIAB
P.M. – AGU, ATML, CTL, CF, DYN, GMCR, MCP, RIG, SLF, SYMC, ZU
Thursday:
A.M. – CPK, CTB, DNDN, DUK, HSH, JASO, MYL, PBH, TM
P.M. – ALNY, CBS, ED, ELX, MBI, MNST, SCTY, ZNGA
Friday:
A.M. – AMRN, PGNX
Economic Releases (8/4 - 8/8):
Monday:
11:30 am CT – TD Ameritrade IMX
Tuesday:
6:30 am CT – NFIB Small Business Optimism Index
6:45 am CT – GS Store Sales
8:45 am CT– PMI Services Index
9:00 am CT – Factory Orders
9:00 am CT – ISM Non-Mfg. Index
Wednesday:
6:00 am CT – MBA Purchase Applications
7:30 am CT – International Trade
9:30 am CT – Oil Inventories
Thursday:
7:30 am CT– Weekly Jobless Claims
9:30 am CT – Natural Gas Inventories
Friday:
7:30 am CT – Productivity & Costs
9:00 am CT– Wholesale Trade |