Stock Market Bears Try To Regain Control, Helped by Weak Oil, Europe

After cooling off Thursday following a three-day win streak, the stock market tipped lower again Friday with investors closely watching government data and the oil market for bullish and bearish clues heading into the weekend. Despite the weaker action Thursday and early Friday, stocks remained on track to post a positive week.

The prime focus Friday is the U.S. government’s release of January Consumer Price Index (CPI) numbers. The report came in unchanged. Analysts had been looking for a 0.1% drop in the CPI, according to Briefing.com. The unchanged number will likely be seen as neutral. The market will accept a slightly higher-than-expected CPI, but would have been more concerned if it had been a lot higher than expected. Markets aren’t pricing in a rate hike, and earlier this week, St. Louis Fed President James Bullard made dovish comments, saying it would be “unwise” to continue rate hikes, the first of which came in December.

Meanwhile, oil, whose sharp rally earlier in the week had boosted stocks, slumped overnight, with U.S. futures falling 2%, hurt by a government report showing a higher-than-expected gain in U.S. stockpiles. Oil also came under pressure from a report that a Saudi official said the country wasn’t prepared to cut production. U.S. oil prices held just above $30 early Friday.

Another pressure point early Friday was weak earnings from Deere & Co. (DE), whose guidance was also seen as negative.

From a technical standpoint, the S&P 500 (SPX) fell below key support Thursday at 1922 (figure 1), putting it into a weak position heading into Friday’s trading session. Key psychological support is at 1900, but early action didn’t show the index testing that level yet. Bonds rose on Thursday, with yields coming down from recent highs. Gold also has been strong of late.

European Car Makers Stall: Overnight, stock markets in Europe fell across the continent, with weakness coming in part from the automobile sector. Both Daimler AG and Volkswagen AG VLKAY were down sharply Friday, with Mercedes reeling from a class-action lawsuit claiming excessive nitrogen oxide emissions levels, something the company denies. Volkswagen, whose own emissions case made headlines last year, saw its South Korean offices searched by local prosecutors as part of that country’s probe into the company’s emissions.

Cool-off Period? Several analysts have said in recent days that the extreme volatility seen in the markets early this year may be coming to a pause, with calmer trading ahead over the next few weeks. The thinking behind this is that traders may wait until the mid-March meeting of the U.S. Federal Reserve for direction. This meeting originally had been expected to bring about another Fed rate hike, but that’s no longer seen as a possibility by most market watchers.

Strong Week Ending: Unless stocks fall off a cliff later Friday, they’ll probably close the week with a strong overall performance. Just over a week ago, if you’ll recall, the SPX had fallen to 1810 in intraday trade, near two-year lows. It’s climbed over 100 points since then, a quick rise after a sharp fall. That surprised some market watchers, who typically expect the market to fall faster than it rises.