The week that was…
Indexes spent much of the week following news about German banking giant Deutsche Bank (DB) – more on that below. Worries about fines and the need for a potential bailout dogged the European banking giant Monday which hurt the broader market. U.S. indexes then rebounded Tuesday on a post debate bounce. Again it is not so much the market likes Hillary but she is a known commodity.
“Investors have a better idea about policies of Hillary Clinton, so any sign she is closer to the presidency is a boost for markets,” said Diane Jaffee, senior portfolio manager at TCW.
Wednesday there was some happiness about a potential agreement by OPEC to reduce oil production a tiny amount. Then Thursday more worries about Deutsche Bank as some hedge funds reduced collateral at the bank. Friday, news reports were floated that the potential fine by U.S. regulators of the bank would be much smaller than originally thought helped lift the stock – and the entire market by extension.
In the end the S&P 500 – after a lot of volatility – ended up nearly where it began! For the quarter The S&P 500 gained 3.3%, while the NASDAQ surged 9.7%! BREXIT aftermath!
On the economic front orders for durable or long-lasting goods flattened out in August after a sizable gain in the prior month. Gross domestic product in the 2nd quarter was revised up slightly to 1.4%. Consumers spending was barely changed in August, while personal income inched and savings rate inched higher.
Here is a 5 day “intraday” chart of the S&P 500 via Doug Short.
Remember when CNBC guaranteed you that if you dared support”Brexit” it would lead to the zombie apocalypse? It actually led to the best quarter in British stocks in 3 years.
The FTSE 100 index has banged out a 6.1% gain for the period, marking its best three-month climb since March 2013. The pound has slumped more than 10% against other major currencies following the June 23 vote, giving U.K. companies that make a large chunk of their earnings overseas an unexpected boost. About 75% of revenue for the FTSE 100 are generated outside the U.K. from large international companies .
“There was an initial shock in the market, but the falling currency ended up being a big positive for the FTSE,” he added.
The week ahead…
The key economic reports of the month will hit next week. ISM Manufacturing and non manufacturing will be released, along with the monthly payroll data Friday. The ISM’s manufacturing index fell to 49.4 in September from 52.6 in August, turning negative for the first time since February. So investors will watch to see if this number gets back above 50. We will see if there is more German bank drama as well.
In terms of the indexes bulls will want to see the S&P 500 break above the 50 day moving average and stay there; while bears would like the opposite. The NASDAQ remains pretty impressive and it would take quite a bit (over 80 points!) to get it back to a more troublesome spot on the chart.
Short term: The Fed came to the rescue to push the S&P 500 out of this potential bear flag the week before last, but this week it was a slog as the S&P 500 remained locked near its 50 day moving average. The NASDAQ continues to look much stronger; so an interesting divergence here.
The Russell 2000 is well above its support at 1200 but bulls would like to see this minor downtrend broken.
The NYSE McClellan Oscillator went back to a choppy phase around the unchanged line after bursting north of zero the prior week on the Federal Reserve rally.
Long term: The S&P 500 is back firmly above spring/summer 2015 highs. The NASDAQ looks in good shape.
Charts of interest:
It was a heck of a week for Deutsche Bank (DB) as there was more drama than a typical Real Housewives episode. The stock sunk Monday to an all-time closing low on a news report that German Chancellor Angela Merkel told Deutsche Bank CEO John Cryan that she wouldn’t offer political assistance to the giant lender as it faces the prospect of a $14 billion fine from the U.S. Justice Department. Deutsche Bank has pushed back against the Justice Department’s proposal that it pay up to $14 billion to settle civil claims related to the bank’s sale of complex structured mortgage bonds during the height of the 2008-2009 financial crisis.
“Some investors are wondering if Deutsche Bank troubles may turn into a Lehman scenario and that’s putting pressure on European equities,” Mark Kepner, managing director of sales and trading at Themis Trading, referring to Lehman Brothers, which collapsed in September 2008, sending shock waves that marked the height of the financial crisis.
Then Thursday the stock tumbled anew on news that some hedge funds that clear derivatives through the firm had withdrawn some excess cash and positions. While the vast majority of the bank’s more than 200 derivatives-clearing clients have made no changes, around 10 hedge funds moved a portion of their listed derivatives holdings to other firms this week, Bloomberg reported.
Meanwhile the stock surged Friday as reports circulated that the bank may be able to negotiate a less-onerous settlement with the Justice Department than the $14-billion figure being discussed.
“It is not surprising to see markets react to Deutsche Bank’s news, as it is one of the major global banks. Just as fears about its potential failure resulted in a decent selloff yesterday, today’s news of a potential settlement is driving markets higher,” said Mark Kepner, managing director of sales and trading at Themis Trading.
“It is surprising to hear the [German Chancellor] Merkel saying they will not help Deutsche Bank, but it’s also possible she is saying this to get the U.S. government to rethink the size of the fine. Everybody knows the cost of allowing a major bank collapse,” said Chiavarone.
Did you follow all that??
Oil jumped as the Wall Street Journal reported Wednesday that OPEC reached an “understanding” to limit crude production and is considering cutting production to between 32.5 million to 33 million barrels a day. This is a minor reduction – if it even happens but it was enough to pop the commodity.
Tempur-Pedic (TPX) dove 22% Wednesday after the mattress company lowered its 2016 guidance late Tuesday.
After Apptio (APTI) last week, another cloud computing IPO this week in Nutanix (NTNX) which was up a cool 130%+ on its first day of trading. It was the best first-day stock pop for a tech company since Castlight Health gained 149% in 2014.
Nutanix stands out as a leader in the hyperconvergence field, which consolidates storage and servers for enterprises, said Arun Chandrasekaran, an analyst at Gartner Inc. Nutanix has a technology advantage for being a first mover, he said.
Intra-Cellular Therapies (ITCI) shares plunged 64% Thursday over news of a disappointing performance in a clinical trial of its schizophrenia drug.
While it wasn’t a massive weekly move, seeing this sort of strength from a mega cap company – where the stock pulls above the 10 day moving average for multiple days in a very mixed market – is impressive!
Have a great week and we’ll see you back here next Sunday!