Market Perspective for November 13, 2015

After six weeks of gains, broad selling pressure marked a corrective week and dropped the S&P 500 Index back into the red for 2015 (excluding dividends). The S&P 500 dropped 1 percent on Monday, influenced by poor economic news out of China. Credit and commodities were also hurt, while gold reached lows last seen in 2010. For the week, the S&P 500 Index fell 3.63 percent, while the Nasdaq slid 4.26 percent. The Dow Jones Industrial Average declined 3.71 percent and the Russell 2000 fell 4.43 percent.

Crude oil ebbed for eight consecutive days through Friday, losing about 15 percent in the process. An unexpected surplus and increased production put pressure on oil. Additionally, a backlog of oil tankers off the coast of Texas has the bears pressing for lower prices. Copper fell to a new multi-year low. Other industrial commodities such as steel, coal, iron ore and aluminum are under similar pressure due to weakness in China.

In earnings news, Cisco (CSCO) posted quarterly results that beat estimates, but the computer-networking giant issued weak guidance, sending the stock lower in Friday trading. Retail shares were also down after Macy’s (M), Nordstrom (JWN) and Advance Auto Parts (AAP) disappointed investors with a series of earnings reports and weak guidance. All three stocks fell nearly 20 percent on the week, while J.C. Penney (JCP) was down about 15 percent. By Friday, the entire sector was under pressure. Even companies that had previously beat earnings, such as Kohl’s (KSS), were trading down.  October’s lackluster earnings and weaker-than-expected retail sales reports provided the impetus for Friday’s move; sales only increased 0.1 percent, well short of economists’ projected 0.3.  The retail report doesn’t fully explain the selling on Friday, but the retail sector’s gloomy overall mood is sparing few companies. Even Amazon (AMZN), which had been solid recently, was virtually flat on the week.

Although retail sales disappointed, the Atlanta Federal Reserve kept its economic growth forecast to 2.3 percent for the 4th current quarter. Inventory data for September, released early in the week, will push the third quarter GDP estimate higher. Odds of a December rate hike held firm at 70 percent during the week, signaling a neutral position among speculators.

The euro and yen were dragged lower versus the U.S. dollar after comments from Fed Chair Janet Yellen and Regional Presidents William Dudley, Charles Evans and Jeffrey Lacker indicated that a rate hike would occur at the December meeting. Mario Draghi, head of the European Central Bank, reiterated that the central bank would engage in quantitative easing if downside risks were to intensify. The People’s Bank of China weakened the yuan on Friday and traders pushed it even lower in Hong Kong after weak credit growth in October degraded the government’s efforts to stimulate the economy.

An International Monetary Fund (IMF) statement forecast of protracted sub-par growth for the global economy helped to strengthen the dollar, as well. The IMF believes the three biggest risks going forward, especially in emerging markets, are a hike in U.S interest rates, low commodity prices and the slowdown in China.

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