U.S. Stocks Can't Escape Oil's Stain, Global Stock Retreat

(Wednesday Afternoon) U.S. stock averages bled red Wednesday amid concern for global markets and a fresh drop for oil prices below $28 a barrel as growth slows in economic engine China.

The broad S&P 500 SPX fell through key technical levels Wednesday. That included support at 1835 (figure 1) and a move below its intraday low of 1821 set on October 15, 2014. According to FactSet, that puts the SPX the farthest below its 200-day moving average since its October 2011 correction. Major averages did claw back from their worst levels of the day as volatile trading continues. All told, the chart shredding leaves some technicians suggesting that more downside action could be in store for the broader market short term.

Losses were widespread, Hong Kong stocks hit a 3½-year low and Japan’s Nikkei closed in bear market territory after China on Tuesday said its gross domestic product expanded 6.9% in 2015, the slowest pace in 25 years. European stocks were sharply lower, trading at 13-month lows and feeling the sting of global uncertainty and weakness in energy stocks. China’s slowdown hits there, too, because its population consumes some 12% of the world’s crude, according to global trade figures.

Global market volatility is diluting what has been a rather surprise-free earnings period. Including Wednesday morning, 35 out of 46 SPX stocks that have reported earnings beat Wall Street expectations, including 11 of 14 financials beating, according to data from S&P Dow Jones Indices.

Swimming in Oil? The International Energy Agency said on Tuesday that “unless something changes, the oil market could drown in oversupply.” The IEA projects that oil markets will still have a surplus of 1.5 million barrels a day in the first half of 2016. Plus, the lifting of international sanctions on Iran could add 300,000 barrels a day of crude by the end of the first quarter, reducing the effect of the 600,000-barrel-a-day reduction expected from producers outside the Organization of the Petroleum Exporting Countries, the IEA said.

Housing Starts Mixed; CPI Dips. U.S. housing starts fell 2.5% last month to an annual rate of 1.15 million, government data showed, below Wall Street’s expectations. Yet for the full year home builders started work on 1.11 million new houses, the most since the Great Recession. Starts climbed nearly 11% compared to 2014. As for that inflation picture, this morning’s consumer price index (CPI) report revealed a 0.7% rise in the measure for all of 2015, the second slowest rate in 50 years, and largely woed to falling gasoline prices and softness in some food prices. There’s more to the figures, though. Core consumer prices—it strips out the volatile food and energy categories—have climbed at a 2.1% annual rate, marking the biggest 12-month change since 2012. Higher costs of shelter, medical care, and other services have driven the increase.

Financials, a Bright Spot (Sorta)? Even in a sector-by-sector survey, it’s challenging to find a bright spot among stocks in the short term. Some glimmer emerges from the financial sector, which has been reporting earnings whose results largely have met or beat lowered Wall Street expectations. Investment banks and retail banks grapple with low interest rates, volatile trading, and energy loan liabilities but many have said the worst appears behind them. Will they too face fresh turmoil from the latest market rout? The latest to report, Goldman Sachs Group Inc GS said it continues to work through legal expenses but reported improvement in investment banking. Q4 net income fell to $765 million, or $1.27 a share, from $2.17 billion, or $4.38 a share, a year earlier, hit by a regulatory penalty. Revenue dropped to $7.27 billion from $7.69 billion.

Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold.

Market volatility, volume, and system availability may delay account access and trade executions.

Past performance of a security or strategy does not guarantee future results or success.

Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.

Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.

The information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.

TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2016 TD Ameritrade IP Company, Inc. All rights reserved. Used with permission.