Stock Week Ahead: Oil Plunge Stirs Fresh Worries, So Does China

Stocks are flirting with a revisit of August levels. Late summer was a time when China’s economic and market challenges risked creeping all the way around the globe. This time? China is top of mind again. And so is oil.

Chinese stocks fell anew on Friday, pushed there when fresh banking data showed lowered demand for new loans. The share drop officially tipped China’s broad stock market into bear territory. That development coupled with another leg lower for crude oil prices, falling in part because traders worry that big customer China won’t help draw down big global supplies. Crude futures dipped below $30 a barrel late last week—territory that carries some psychological implication for traders.

Inter-market volatility could persist. As recently as Thursday’s session, stocks logged a respectable rally, with bulls soothed by remarks from the Federal Reserve’s James Bullard. He indicated some unlikelihood for an aggressive Fed rate-hike campaign this year. New York Fed President William Dudley was upbeat in a Friday speech, saying he still expected the economy to push the unemployment rate down and for growth to be slightly above the long-term trend.

But it’s hard for stock traders to focus solely on the Fed or U.S. earnings in isolation. For now, focus remains on that oil chart as well as stock charts. Some investors are worried about what might happen if the S&P 500 (SPX), in figure 1 below, pierces its August low of 1,868.

Bank of America Corp. BAC will also report. BAC has made public many notable changes in the last few years by cutting staff and trimming its business. Will those moves show up in earnings? Goldman Sachs GS issues its earnings early Wednesday and market volatility could play a role in that report.

There’s been a mixed batch of earnings out of the banks so far. Citigroup C reported a jump in Q4 earnings as its legal fees fell relative to comparable quarters. Revenue also rose at the third-largest U.S. bank by assets. In fact, revenue rose 3%, to $18.46 billion from $17.9 billion a year ago, the company’s report revealed. Meanwhile, Wells Fargo & Co. WFC topped Street expectations with a flat profit performance relative to a year earlier, but its $21.6 billion in revenue was below the Street’s expected $21.8 billion. Company comments pointed to the dent of falling oil prices on its commercial loans to the energy sector.

From the consumer corner, eBay Inc. EBAY and Netflix, Inc. NFLX report earnings post-close on Tuesday. The elusive consumer has been a head-scratcher for investors. Maybe these two tech-meets-shopping-meets-entertainment stocks will shed more light on the strength of consumer spending.

Where Is That Consumer, By the Way?
As for the economy, housing sector numbers are a feature this week. Auto and housing numbers have been generally bullish, helping to support related stocks in late 2015 and likely helping to justify the Fed’s first interest rate hike in nearly a decade in December.

But there’s still slack in broad consumer spending, according to recent data. That includes a report issued Friday that showed a 0.1% dip in retail sales in December, following a 0.4% gain in November. Yearly statistics were a little sobering. For all of 2015, purchases climbed 2.1%, the smallest advance of the current economic expansion, Bloomberg News says. Sales were up 3.9% annually in 2014. Receipts at gas stations fell 1.1% in December to account for some of the total decline. But cheaper pump prices are not translating into other spending. Consumer uncertainty could bring added emphasis on next week’s housing-focused line-up.