2016: Not the Start Expected

The SP 500 fell 2.5% today, and is down 5% in the last week.

With the SP 500 down about 7.5% YTD already, needless to say, this wasn’t the start expected to 2016.

At a Chicago CFA Society luncheon today, Jason Trennert, the managing partner of Strategas Research Partners, noted he thought the SP 500 would be up 10% in 2016, exactly what I was thinking here in mid to late December ’15.

With JP Morgan (JPM) and Intel (INTC) set to report this tomorrow, Thursday, January 13, ’16, finally Q4 ’15 earnings and ’16 guidance aren’t just a guess.

So what’s been a surprise so far in 2016 ?

  • Freeport (FCX) looks like it is going bankrupt, the way it is trading. Jason Trennert mentioned today we might see one major bankruptcy before this correction ends. Chesapeake (CHK) ? Freeport (FCX) ? Peabody (BTU) ? (All my suggestions, not Jason’s).
  • Neither Value nor Growth is working this year. The FANG stocks have gotten crushed. Amazon is down $100 from its all time, late December ’15, high. The stock is testing its upward sloping trendline off the ’15 low. It needs to hold here.
  • Back in the bull market of the 1990’s, there used to be a graph or chart that circulated that showed that bear market bottoms were put in usually when a big Financial blew up. Continental Bank in the mid 80’s, Drexel Burnham in 1990, Orange County and the Mexico devaluation in late 1994, may not have been bear market finales but they typically marked the end of major corrections. Could be something like that is looming today, in another sector.
  • The dollar index closed at 98.94 today. Hasnt changed much as all and in fact is still under its March ’15 multi-year high near 100. A steady dollar or a lower dollar is still, “net-net” a positive in my opinion.
  • Banks and Financials have gotten just hammered YTD, possibly due to flatter yield curve. I do think Financials offer good value here. Corporate loan growth should be decent when we hear from JP Morgan, Wells Fargo, Citigroup, and US Bancorp, will give us a good look at the consumer and corporate loan books.
  • The Russell 2000 is down over 20% from its all time highs. That is a real bear market.
  • High Yield (HYG) ETF has not made a new 52-week low even with the equity carnage.

Our only change thus far this year is to sell the Brazil ETF (EWZ) and depending on the client – some Energy exposure, both of which was added in October ’15. C

Clients have no exposure to the Russell 2000, biotech’s (those two are related), Transports, Basic Materials, and have just a 3% – 4% exposure to Emerging Markets (Long some VWO and EEM) and Energy (XLE and IYE), and yet I still feel pretty stupid.

click to enlarge
click to enlarge

 

We’ll leave readers with one chart. Some technicians think the Aug ’15 lows of 1,867 could be tested now. The overnight futures low in August ’15 was 1,831. Note the 200-week moving average on the chart near 1,750.

We get a great look at the big bank earnings the next two days. Read the conference call notes.

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