The stock market has been enduring a shocking few days: from its close on Thursday October 8 to yesterday’s closing level, the S&P 500 index plunged 4.8%, its worst three-day performance since 2011.
By Peter Martin
Tuesday, October 14, 2014
Today has seen a sizeable rebound, but it remains to be seen whether this is a temporary reaction to stocks being oversold, or whether upward momentum can be maintained for a more sustained period. By early afternoon in New York, the Dow Jones Industrial Average was up 0.57% or 92 points, while the S&P 500 index gained 0.80% or 15.0 points to stand at 1889.6.
The bounce coincides with the corporate earnings season getting into full swing, with several major banks reporting today, though the performance of those companies has been something of a mixed bag. Citigroup ($C) was the most impressive, its share price rising 3% after the company announced a 13% increase in net profit for its third quarter and beat expectations for both earnings and revenue. JP Morgan ($JPM) edged higher after missing on earnings but beating top-line estimates, while Wells Fargo ($WFC) slipped 1.4% despite meeting expectations.
Other big names reporting included Dow component Johnson & Johnson ($JNJ), which rose in pre-market trading after reporting expectation-beating earnings and revenue, but its share price later dropped more than 1%. Bank of America, American Express and eBay are a few of the bigger names reporting to market tomorrow.
Despite the turnaround in the performance of the stock market, economic news continues to align with the recent trend, with signs of weakness in Europe dragging on the euro and a weak demand outlook weighing on the price of oil.
ZEW’s widely-followed survey of German financial analysts points to softer conditions in Germany than anticipated. The ZEW survey for October yielded a current economic conditions reading of just 3.2, versus 25.4 in September and a consensus estimate of 15.0, the biggest drop seen in over three years, while the business expectations index moved into negative numbers, sliding to -3.6 from last month’s reading of 6.9 and also coming in well below expectations.
It is the first negative reading for this indicator since November 2012. Germany is the economic powerhouse of Europe, and such a pessimistic outlook amongst its financial experts does not bode well for the ECB’s efforts to stimulate growth and combat persistently-depressed levels of inflation. The euro weakened against many major currencies, including a 0.74% drop against the dollar.
The pound has also been struggling today, in fact being one of the few currencies against which the euro strengthened. A significant component contributing to the currency’s weakness was a surprisingly soft level for last month’s UK Consumer Price Index. The September CPI was unchanged from August, taking the year-on-year change to 1.2% from 1.5% in the previous month. This is the lowest annual change recorded in five years.
With inflationary pressure appearing to sputter with the yearly inflation rate so far off the Bank of England’s 2% target, a move to hike rates by the central bank’s Monetary Policy Committee seems further away than previously thought and expectations of the current status quo being maintained for an extended period will have been bolstered by today’s report. GBP/USD was down more than 1% at 1.5915 by mid-afternoon in New York.
The International Energy Agency (IEA) trimmed its projections for oil demand for both this and next year, the fourth consecutive month in which the agency has cut its forecasts for 2014. US light crude oil futures plunged more than 3%. The Energy Department reports weekly inventory data on Thursday, a day later than normal because of the Columbus Day holiday.
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