Equities and oil panic as investors offload size to end 2018.

This Christmas, Santa was not kind to markets. Was this a revenge play on dismissing any signs of a Santa Claus rally? This Christmas Eve solidified the worst performance ever by the US stock market. Investor and trader sentiment was already bearish and toxic but there were many events that added to the downside among the year-end tax loss selling. Global economic growth has been in question for a while now and the concerns helped the sellers press markets lower along with the Government shutdown’s uncertainties and talks of a recession.

The holiday season was not the only reason why economic data was delayed or not delivered. The government shutdown delayed many key US readings. Early in the week the S&P 500 joined its companions in bear market territory, dropping as much as 21% from its peak. The downside was short lived as buying came in to save markets on Boxing day. Was this the doing of the PPT? The buying was very systematic, not to mention the proposed “Fed Put” at 2350. This level could have very well triggered the buying into the close of the year. Or did it?

Oil pressed lower on news this week, while the VIX peaked at 36, still far from its peak of 96.40 in 2008. Even shy of the 50 mark which was printed this February, our real first scare.

After the Christmas Eve massacre in US equities, Wednesday proved to be a miracle of sorts. The Dow alone fell over 500 points on Monday, only to rally over 1000 points when market reopened the day after Christmas. This was a record rebound. The first time the Dow gained over 1000 points in a single day, ever. The Dow was not the only miracle market, all other equities rebounded from lows aggressively, oil too popped nearly 9% from the lows, so did Treasury yields which contributed to the steepening along the yield curve.

Moving onto potential PPT claims…. This looked like a typical rally within a bear market, many even called it a dead cat bounce. No real catalyst, no major news, suggesting a algo short covering. The euphoria was short lived as Thursday came out, pressing markets down again, eating away at the previous days gains. At the end of the week, equities gained on a net basis, attributed to what happened in the last three days of trading.

There was a lot of corporate news this week, from Apple investing in itself losing $9.0 billion buy buying near the peak of their share price. Which was in the high $220 level, price of an Apple share is now worth roughly $156. Amazon however managed to temporarily stall the downside as it received “record-breaking” holiday season orders. A massive Doji candle print came out on December 24th on the online retailers stock, which acted as a temporary reversal point. The low of the week was $1307.00. By Friday’s close the stock was trading at $1478.02, a near $200 rebound.

Here is a look of last week’s stock market on a daily basis (red vertical lines split days).

Stock Market and Sector Overview

Here is a break down of the weekly performance in various stock market sectors (top chart):

  • Energy stocks up 2.7%
  • Technology up 3.87%
  • Financials up 4.29%
  • Retail up 6.2%
  • Utilities down 1.73%

Overview of key markets last week (bottom chart):

  • Crude oil down 0.55%
  • S&P500 up 3.07%
  • Silver was  up 5.00%
  • Gold up 1.91%
  • US dollar down 0.69%

US Markets are driving everyone crazy!

It’s no surprise that volatility came in aggressively this week, the swings lower and higher were, well… a roller-coaster. From the “Fed Put” level at 2350 on S&P 500 futures to the 2500 into the close of the week. No to mention that Nasdaq futures dropped as low as the 5800 area before attempting to test the 2018 open at the 6405 level on Friday, December 28th 2018. The end of the year is uncertain to say the least.

So much so that even Trump is going around asking for solutions. Well ok, not the President himself, but the Trump Administration! Proving to the public, yet again that the markets health is a very important focus of the Trump Administration. A member of the Administration even went as far as to reach out to a notable hedge fund investor for advice. Surprisingly, or not so much, this exchange happened after the Christmas Eve drop.

The identity of the hedge fund manager remains unknown, however the fact that this exchange happened, could indicate that the PPT did in fact have something to do with the rally. The Administration was adamant on helping equities, because a strong market reflects well on Trump and his presidency.

So what did this mystery hedge fund guru tell the Administration? Something all of us knew, but Trump would probably not do. That is, side with Powell, give the man a chance to do his job. And that is assess the economy and find the best possible solution to whatever problems may arise. If he and the Fed believe that raising rates will help the economy in the long run, let it be. That means, Trump will have to end criticism of the Fed and Powell on social media platforms, Twitter. Which he should be more cognizant of in general. Another piece of advice was to cease the back and forth with China and reach a trade agreement. The whole ordeal has brought about a lot of uncertainty in markets, and will continue to do so if sanctions are thrown back and forth. Which will dampen the economy. Finally, the last piece of advice was to slow down on the Administrations turnover. Firing everyone like he did in his reality TV show won’t help America.

Its no surprise that the vocal President had a lot of effect on market movement over his term, just take a look at the chart below!

Trump and the S&P 500

Other than Trumps very powerful views, markets over this holiday season have been somewhat insufferable for traders. Not to mention the recent pension fund fake out to add to wild market conditions.

There was pension fund buying over the past week which helped the buyers come into this illiquid market place. Huge buy orders came out this week as pension buying pumped the market higher after the Christmas drop. Many investors and traders attribute equity upside to this consistent buying. However on Friday into the close of the session similar buying came out to “punk” traders. This time however along with the spike in S&P 500 futures, the 10-year yield remained flat. This was a clear indication of a fake out in buying, equities quickly sold off once traders got wise to the fake out. In previous pension buying spurts the 10-year yield followed suit and pressed higher, on Friday that was not the case.

The choppy, wild markets to end the year might just be the beginning of the confusion. There is a lot of talk of the potential recession, even depression that is set to rock the US and the world in 2019, but how bad could it really be?

The common theme among top portfolio managers interviewed by Bloomberg is: stocks are going to be risky in the coming, volatility is back and will continue while returns on all asset classes with be “muted”.

We are expecting two rate hikes next year, cut from the three initially proposed, the “Fed Put” may have been activated as well, while VIX is a long way away from the February highs let alone all time highs, is this just the beginning and will the S&P 500 break below 2000?

Weekly Economic News

Next week, the holiday season continues as we celebrate the turn of the new year. 2018 is ending, only to birth 2019, the year of opportunity. Meaning, there are only two days this following week that have high impact events.

Monday-No high impact news

Tuesday-Markets closed in observance of New Year.

Wednesday- No high impact news.

Thursday, ISM Manufacturing PMI out of the US.

Friday, the day is packed with high impact news out of the US and Canada. Employment numbers out of Canada, watch the Canadian dollar on this news, it will come out pre market. Employment numbers out of the US as well, this will bring volatility and movement to US equities, USD pairs and the Euro. Later in the morning, Jerome Powell goes on the wire, watch this news carefully as he might give some indication of future Fed actions.

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