Stocks Crushed in Worst Ever New Year’s Start

Advertisement

The selling dragged on Thursday, pushing U.S. equities back down to the August/October lows in what was the all-time worst start to a year.

Investors continued to be bothered by a number of factors, including a “circuit breaker” halt to trading in China overnight after just 30 minutes. There are also simmering tensions in the Middle East between Saudi Arabia and Iran.

In the end, the Dow Jones Industrial Average took a 2.3% beating, the S&P 500 shed 2.4%, the Nasdaq Composite lost 3% and the Russell 2000 ended the day 2.7% lower.

For the year-to-date, the Dow is down 5.2% and are more than 10% off of their high of 18,351 set in May. Small-caps stocks have been hit even harder, with the Russell 2000 down 6.3% for the year so far and nearly 18% from their all-time high.

QUIZ: Are Your Investment Fees Bleeding You Dry?

Treasury bonds were stronger, the dollar was down sharply, gold gained 1.5% and oil lost another 2.1% to close at $33.25 a barrel.

DJIA 1-7 copy

Transportation stocks were hit hard, losing 3.1% as a group on worries over the health of the U.S. economy. Technology stocks were also down hard, dropping 3.1% as a group, with a number of popular names caught in the downdraft. Apple Inc. (NASDAQ:AAPL) dropped 4.2% to fall below the $100-a-share level. Facebook Inc (NASDAQ:FB) lost 4.9% as its update on its Messenger app was ill received.

AAPL 1-7 copy

That’s been great news for the put option positions recommended to Edge Pro subscribers. Their Jan $110 AAPL puts recommended back in December are carrying at gain of 416% while the Jan $103 FB puts recommended earlier this week are up 73% already. With multi-month trading ranges in these one-time momentum favorites breaking down, option premiums are rising fast.

Focus has been on the pressure hitting the Chinese currency amid currency outflows and official devaluations, destabilizing credit markets there and calling into question the policy efficacy out of Beijing.

Reuters is reporting that policy advisors are pushing the People’s Bank of China to stem the bleeding with a sharp devaluation of 10% to 15% — something that would carry its own risks, such as calls of an outright currency war with the rest of Asia.

If there was a bright spot on the day, it was some better-than-expected results from the retail sector for the holiday shopping season. JC Penney Company Inc (NYSE:JCP) gained 3.7% to pop up and over its 200-day moving average after reporting a 3.9% rise in comp-store sales. Macy’s, Inc. (NYSE:M) gained 2.1% after weaker comp results were offset by planned job cuts and other cost saving strategies.

Looking ahead, attention will be on Friday’s December non-farm payrolls report for clues as to the pace and timing of subsequent rate hikes from the Federal Reserve this year.

As a reminder, after raising rates by 0.25% in December for the first time since 2006, the Fed is looking for another four quarter-point hikes in 2016 — that’s about half the pace of a normal tightening cycle but twice as fast as the futures market is anticipating.

Something’s got to give: Either the Fed walks back its rate hike forecast or the market will need to price in costlier credit.

SB 1-7 copy

JPMorgan Chase analysts are looking for a 215,000 payroll gain for the month and a drop in the unemployment rate to 4.9%. Their confidence is bolstered by a number of indications of labor market strength in recent weeks, including:

– A 257,000 private sector job gain in the ADP employment report.

– According to the Challenger Employment Report, December was the lowest month for announced job cuts since 2000.

– The NFIB survey showed an increasing share of small businesses are reporting job openings and plans to increase hiring.

– Jobless claims have been solid.

– And the employment subindexes of the ISM services survey increased in December.

But a solid jobs report is likely to be considered another negative catalyst for stocks since it presages a rise in wage inflation — which translates into lower profitability and a more aggressive pace of tightening from the Fed.

For now, I continue to recommend a focus on defensive positions such as puts, precious metals, and volatility including the iPath Short-Term VIX (NASDAQ:VXX) that is up more than 23% for Edge subscribers since November 9.

Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.


Article printed from InvestorPlace Media, https://investorplace.com/2016/01/stocks-new-years-fb-aapl/.

©2024 InvestorPlace Media, LLC