Market Perspective for February 12, 2016

Investors experienced another volatile week of trading. The Standard & Poor’s 500 sold off slightly more than 2.5 percent on Monday, rebounded Tuesday and Wednesday in the lead up to Federal Reserve Chair Janet Yellen’s two-day congressional testimony. Selling pressure resumed Thursday as oil reached a multi-year low of $26 per barrel and Yellen’s ambiguous testimony. While the Fed failed to completely rule out negative interest rates should the economy slow, Yellen expressed a continued commitment to raising interest rates later this year.

Thursday’s decline was halted by a strong afternoon oil rally on a report of production cuts at OPEC. The market was also helped by the Bank of Japan’s intervention in the currency markets. Treasury yields claimed their biggest single-day gains in months on Friday. Oil also rebounded and equities erased most of their losses. The S&P 500 was still down about 1.5 percent due to Monday losses.

Yellen’s testimony to Congress this week contributed to a temporary spike in gold by nearly $100 from last week’s close to its intra-week high as investors reacted to market uncertainty.  Gold has been in a fear-driven uptrend since the Bank of Japan announced it would cut rates below zero at the end of January, and Yellen’s comments may have had a similar impact.  It pulled back sharply today.  It is important to remember that the largest purchasers of gold are the very economies investors aim to protect against. China accounts for 40 percent of global gold consumption and purchased 19 metric tons in December alone.

In earnings news, Coca-Cola (KO) rallied and shares bucked the downtrend in the market. Walt Disney (DIS) investors focused subscription losses in the company’s ESPN division, lowering share prices despite blockbuster earnings from “Star Wars” that exceeded all estimates.   Cisco Systems (CSCO) advanced almost 10 percent after earnings beat street estimates. Shares of CVS Health rallied slightly more than 8 percent as reported sales increased more than 12.5 percent in the most recent quarter. Time Warner (TWX) beat earnings per share estimates, but missed revenue forecasts and earnings plunged from a year ago in the struggle to compete with Netflix (NFLX) and other streaming entertainment options. PepsiCo net revenue as income rose to $1.72 billion. The better-than-expected report lifted shares higher on the week.

The Bureau of Labor Statistics reported job openings rose in December. According to the Job Openings and Labor Turnover Survey (JOLTS), there were 5.6 million openings in December, increased from the 5.43 million reported in November. The report reinforces the Fed’s belief that the labor market is strong. Workers are also quitting their jobs at higher rates, a sign of confidence among workers. On Thursday, the initial weekly unemployment report showed 269,000 people filed for benefits, which was 12,000 less than estimates.

The mortgage purchase application index Wednesday revealed strength in the housing market, as well. The report indicated a 9.3 percent increase over the previous week as buyers took advantage of lower mortgage rates. Refinancing applications were also up 16 percent. The Atlanta Fed’s GDP Now model also raised its estimate of first quarter GDP growth to 2.5 percent based on strong wholesale data. Retail sales were also stronger than expected in January, rising 0.2 percent versus an expected 0.0 percent.

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