The Market Wrap for January 22: Goldman Sachs Proves the Vampire Squid Is Alive and Well
Aaron Levitt Jan 22, 2016
Though the markets were closed on Monday due to the Martin Luther King Day holiday, the rest of the week certainly made up for the time off. Volatility continues to be the name of the game as traders and investors digest every bit of good and bad news. The swings this week were particularly violent as the combination of poor data, crashing commodity prices, and relatively negative earnings moved stocks in a big way.
On the data front, muted inflation figures helped boost asset prices as investors ascertained that the Fed would leave rates where they are. Meanwhile, measures of manufacturing and unemployment came in lower than expected. That sent stocks crashing since the economy might not be as great as once thought. All of this data was happening in the forefront while dour warnings about the planet’s economy came from every angle at the World Economic Forum in Davos.
The continued poor guidance numbers from numerous firms reporting earnings this week didn’t help either.
All in all, 2016’s mantra could be, “You must this tall to ride the rollercoaster.”
On Monday, investors were treated to a day off, which was especially helpful after last Friday’s meltdown.
The stock market was closed due to Martin Luther King Day. As a result, there was no data released in the U.S. on Monday nor were there any earnings reports aside from a few smaller-capitalization and international firms.
Here in the U.S., the release of data was petty nonexistent on Tuesday. The Treasury Department’s Net Long-Term Securities Transactions came in at $31 billion, which is no surprise since many investors have fled to bonds. The real data point came from China and it was not good at all: China’s pace of growth slowed to its lowest annual pace in nearly 25 years at just a 6.9% GDP increase. That caused oil prices to fall to under $30 per barrel.
Naturally, this caused a whole lot of volatility. Eventually, the markets were able to post a slight gain on the day. The Dow Jones Industrial Average rose 27.94 points to reach 16,016.02. The S&P 500 was essentially flat, while the Nasdaq fell 11.47 points.
- As one of America’s largest financial institutions, Bank of America Corp. (BAC ) has tremendous pull on the markets, and investors liked what they saw. BAC managed to beat estimates when it reported EPS of 28 cents. BAC yields 1.46%.
- All of this trading and volatility has been good to brokerage house and asset manager Charles Schwab Corp. (SCHW ). Schwab has seen more investors “talk to Chuck” and was able to report a 3-cent beat on its reported earnings of 28 cents a share. SCHW yields 0.95%.
- While it did report a 1-cent miss, things could have been worse for Delta Air Lines (DAL ). The airline was able to stem its losses, thanks to the drop in crude oil/jet fuel prices. That’s helped DAL continue to have some decent free cash flows, a full “70% of which are going back to its investors” in the forms of dividends and buybacks. DAL yields 1.18%.
- After cutting its dividend last month, Kinder Morgan’s (KMI ) earnings report wasn’t a pleasant one. The pipeline firm reported a surprise loss of 29 cents versus an estimated gain of 18 cents per share. That led some analysts to question that "that dividend isn’t even secure.”
- Investment bank and asset manager Morgan Stanley (MS ) managed to report a 10-cent per share beat. MS reported EPS of 43 cents and gave a strategic update. Its streamlining efforts should help free up cash flows to boost its 2.36% dividend in the future.
Wednesday brought some inflation data to the markets. The Bureau of Labor Statistics’ latest CPI numbers continued the trend of falling inflation with the regular Consumer Price Index actually dipping into deflationary territory. While that could cause the Fed to pause its rate hike (yeah easy money!), deflation is a very hard situation to overcome when an economy is in contraction. And given the dour outlook presented by the financial, political and business elite at the World Economic Forum that started on Wednesday, the low inflation numbers aren’t a good thing.
That prompted some of the largest trading volumes in the markets not seen since the summer shake out. After falling nearly 600 points, the Dow Jones Industrial Average fell 249.28 points to land at 15,766.74. Both the S&P 500 and Nasdaq also declined.
- Briggs & Stratton Corp. (BGG ) was the star of the earnings show on Wednesday. The maker of engines and other power tools reported a big 16-cent per share beat when it reported EPS of 34 cents. On its conference call, BGG reaffirmed its dividend. Briggs currently yields 3.22%.
- While it sold less burgers, ribs and other Tex-Mex specialties, Brinker International Inc. (EAT ) did manage to make more money per sale than before. EAT managed to report a 3-cent earnings beat. The parent of Chili’s restaurants reported EPS of 78 cents per share and yields 2.75%.
- The Vampire Squid is really doing “God’s Work.” Goldman Sachs Group (GS ) managed to report a mega EPS beat of $1.14 per share. The investment bank reported earnings of $4.68 per share and yields 1.61%.
The data on Thursday painted a dark cloud above the global economy. The Federal Reserve Bank of Philadelphia’s Philly PMI, which is a measure of manufacturing activity in the region, fell into further contraction with its latest reading. Additionally, the latest unemployment numbers came in well above estimates and showed that 293,000 new workers filed for benefits last week.
But the markets didn’t seem to care. Oil rebounded sharply and that was enough for traders to snag up beaten down energy bargains. The Dow Jones Industrial Average jumped 115.94 points to reach 15,882.68. However, the broader S&P 500 and Nasdaq couldn’t brush off the bad news and only reported modest gains of 9.66 and 0.37 points, respectively.
- The Bank of New York Mellon (BK ) continued the trend of banks beating earnings but missing revenues. BK reported EPS of 68 cents per share, which was good for a 4-cent beat. The large custodial bank mentioned that it “remained focused on maintaining a strong balance sheet as well as capital and liquidity positions.” That’s good news for its 1.91% dividend yield.
- The oil slump hasn’t been kind to many stocks, but when you’re one of the largest oil service stocks, you can make it work. Schlumberger NV (SLB ) managed a 2-cent EPS beat over estimates. SLB yields 3.28%.
- Casualty and property insurance giant Travelers Companies (TRV ) reported a big earnings beat Thursday. TRV reported $2.90 in earnings, which was 25 cents higher than what analysts were expecting. Travelers currently yields 2.35%.
The end of the week could see another bout of big time volatility. Data for Friday will be light; the National Association of Realtors will report its monthly existing home sales figures. The annualized metric of older homes that were sold during the previous month has been drifting down hard over the last few readings. If it tanks again, that’s all it could take to send investors and traders screaming for the exits.
Also adding to the volatility could be the day’s earnings. While reports from software giant SAP SE (SAP ) and regional bank SunTrust Banks Inc. (STI ) are important, the most important release could be General Electric (GE ). Any bad numbers or terrible guidance from the industrial stalwart could make stocks go crazy in either direction.
Already, investors are bracing for another down day. Premarket trading data has the Dow, S&P 500 and Nasdaq opening lower.
The Week Ahead
Looking ahead, investors must continue to brace for volatility. Next week, we’ll get plenty of big time data. This will include durable goods orders, manufacturing and consumer confidence measures, all of which will lead up to the next Fed interest rate decision. While no one expects the Fed to hike again, there is a chance that Janet Yellen could surprise investors with an increase.
On the earnings front, we’ll see the season really kick off with reports from such firms as Halliburton Co. (HAL ), McDonald’s (MCD ), 3M (MMM ) and Johnson & Johnson (JNJ ). Any poor reports or guidance figures from these bellwethers will spell trouble as well.
At the end of the day, 2016 continues to be a very hard market to gauge.
Get Email Updates
Join over 100,000 investors who get the latest news from Dividend.com
Dividend payers have proven time and time again, that in periods of malaise,...
Check our latest update on the Best Dividend Stocks List, wherein an industrial...