Thursday, January 14, 2016

Rally Falls Short in Final Hour; NASDAQ Still Down for the Week; Investors Not Biting on FANGs

Of the hardest hit stocks, many of them, including some of the tech all-stars, such as Facebook (FB), (AMZN), Netflix (NFLX), and Alphabet (Google, GOOG), otherwise known as the FANGs have been mercilessly sold off since December, and, likely, for good reason.

Overall, their price-earnings ratios are stratospheric, they don't actually make anything, Amazon, in particular, rarely turns a profit, and they don't offer dividends, only appreciation in stock price as their sole saving grace.

Take away the increasing stock price and what have you got? Losses as far as the eye can see, and traders have recently shied and run away from these four horsemen of the internet.

The big winner today was Facebook, which gained nearly three percent, but is still down close to 10% overall. The others didn't fare quite so well. Amazon gained close to 2%, though it is still down over 12% since December 30. Netflix added back just 0.5%, and is down close to 20% since highs made the first week of December. Google, the best of the bunch, with regular profits and solid earnings quarter after quarter, gained 2% and is only down about 8% since after Christmas.

Fourth quarter earnings are coming due for the bunch of them, and market participants will be eager to note any difficulties experienced during the holiday period, though Amazon could surprise, as more and more people flocked to the web for holiday shopping in the past year.

Otherwise, it was a hopeful day on Wall Street, though the massive rally sparked by St. Louis Fed governor James Bullard's comments that the low price of oil was an impediment to the Fed's 2% inflation target, and thus, the Fed may "rethink" its interest rate hike policy for 2016.

While lower oil - and consequently gas - prices are good for everyone except possibly the oil companies and the Fed, Bullard's jawboning served to send the markets soaring on the day, wiping out much of Wednesday's steep losses.

However, the rally fell short in the final hour, as traders exhausted their buying optimism.

Not much should be made from today's trade. Stocks are still moribund and stuck well below all-time highs. The hope of making back the losses of the past two weeks is slim, and anyone thinking the indices will retrace all the way back to all-time highs made in May 2015 is whistling past the grave.

Unless earnings for the fourth quarter are utterly surprising to the upside, expect the pattern of wild swings to continue. Global markets are still in trouble, as is the worldwide currency crisis, reaching from Japan to China, Australia, Europe and even to Canada, where the looney has lost significantly to the dollar due to the downturn in the price of oil.

It's indeed unfortunate that so many keys of economics are locked to the price of oil, because, by most measures, the price is going to stay low or lower for an extended period of time, pushing all other prices down with it. At the apex of the deflationary spiral, oil, which powers more than just machines, pushes down prices for virtually all products, from manufactured to agricultural.

The rally today erased the loss for the week on the Dow, left the S&P virtually unchanged, and the NASDAQ with a 26-point loss. Friday will determine whether the week ends with a positive or negative tone.

The day's action:
S&P 500: 1,921.84, +31.56 (1.67%)
Dow: 16,379.05, +227.64 (1.41%)
NASDAQ: 4,615.00, +88.94 (1.97%)

Crude Oil 31.09 +2.00% Gold 1,077.20 -0.91% EUR/USD 1.0867 -0.14% 10-Yr Bond 2.0980 +1.55% Corn 358.25 +0.07% Copper 1.98 +1.12% Silver 13.85 -2.20% Natural Gas 2.14 -5.69% Russell 2000 1,025.67 +1.53% VIX 23.95 -5.04% BATS 1000 20,474.30 +1.64% GBP/USD 1.4412 -0.07% USD/JPY 118.0400 +0.34%

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