Market Weakness Spreads Before Earnings
US stocks fluctuated Monday before reaching new three-month lows after a week-long slide leading into this quarter’s earnings report season.
By Vikram Rangala
Monday, January 11, 2016 - 00:00
Meanwhile bonds, the yen, and gold all struggled as the safe haven trade paused after another strong US jobs report and a further decline in crude oil prices.
This quarter’s earnings reporting season begins after today’s market close. Alcoa Inc. will, as usual, give the season an unofficial kick-off, with 11 major firms due to post their quarterly results this week, including Intel, JPMorgan Chase, and Citigroup.
With analysts estimating that the S&P 500 member firms’ profits fell an average of 6.7% last quarter, investors will be watching closely to see how much the slowdown in global growth has hurt corporate profits. The slowdown is truly global, affecting even the fast-growing emerging markets. India, which surpassed China among major economies for growth, posted a nominal increase in GDP growth of 7.7%.
In other troubling signs, the Shanghai Composite Index fell more than 5%, triggering fears of another panic despite the removal of the 7% circuit breaker which caused more trouble last week than it prevented. South Africa’s rand crashed to a new record low against the US dollar, putting the country at serious risk of recession and a downgrade by credit rating agencies to junk status.
A report by Morgan Stanley said that a continued surge in the dollar—which looks more likely with the euro also being held down by the yuan and China’s central bank, which is holding the exchange rate stable—could press oil as low as $20 a barrel. Brent Crude dropped to a new multi-year low just above $31 a barrel, with the strong dollar, weak Chinese demand, and the ongoing oversupply all pressing the market downwards.
While the Morgan Stanley report may be off on the number of $20 a barrel, it gave added credibility to the worries that the energy sector and to some extent the financial sector will be crippled through 2016 by low oil prices to an extent that will not soon be offset by the effects of lowered fuel and transportation costs.
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